In its first year of operations, Kumar Company Ltd. recognized Rs30,000 in service revenue, Rs4,800 of which was on account and still outstanding at year-end. The remaining Rs25,200 was received in cash from customers.
The company incurred operating expenses of Rs17,000. Of these expenses Rs12,000 was paid in cash; Rs5,000 was still owed on account at year-end. In addition, Kumar prepaid Rs2,600 for insurance coverage that would not be used until the second year of operations.
Instructions
(a) Compute Kumar's first-year cash flow from operations.
(b) Compute Kumar's first-year net income under accrual-basis accounting.
(c) Which basis of accounting (cash or accrual) provides more useful information for decision-makers?