State College Technology Store (SCTS) is a retail computer store in the university center of a large mid-western university. SCTS engaged in the following transactions during November of the current year:
Nov. 1 Purchased 20 Nopxe laptop computers on account from Led Inc. The laptop computers cost $800 each, for a total of $16,000. Payment is due in 30 days.
Nov. 6 Sold four Nopxe laptop computers on account to the Department of Microbiology at State College at a retail sales price of $1,200 each, for a total of $4,800. Payment is due in 30 days.
Dec. 1 Paid the $16,000 account payable to Led Inc.
Dec. 6 Collected the $4,800 account receivable from State College’s Department of Microbiology.
Assume that the other expenses incurred by SCTS during November and December were $1,000, and assume that all of these expenses were paid in cash. SCTS is not subject to income tax because it is a wholly-owned unit of a nonprofit organization. Compute the net income of SCTS during November and December using accrual accounting principles. Also, compute what SCTS’s net income would have been had it used the cash basis of accounting. Explain the difference.