To demonstrate the difference between cash account activity and accrual basis profits (net income), note the amount each transaction affects cash and the amount each transaction affects net income.
A. Issued stock for cash $20,000
B. Purchased supplies inventory on account $1,800
C. Paid employee salaries; assume it was current day’s expenses $950
D. Paid note payment to bank (principal only) $1,200
E. Collected balance on accounts receivable $4,750