In its first year of operations, Brady Ltd earned $180 000 in services revenue, $12 000 of which was on account and still outstanding at year-end. The remaining $168 000 was received in cash from customers. The company incurred operating expenses of $88 000. Of these expenses, $50 000 were paid in cash with $22 000still owing on account at year-end. In addition, Brady prepaid $14 000 for insurance coverage that would not be used until the second year.
a. Apply cash accounting to calculate Brady's first year's profit
b. Apply accrual accounting to calculate Brady's first year's profit
c. Debate which basis of accounting you think is more useful for decision making.