20. For 1 month a company bills out $15,000 in completed work and receives $5,000 in payments. They pay $5,000 to supply houses and post another $5,000 in bills to pay the next month. Using a cash accounting method and not considering any other revenue or expenses, what is the company's net income for the month?
Answer: A
The company's net income for the month is $0.
In a cash accounting method, income is recognized only when cash is received. Since the company only received $5,000 in payments for the month, despite billing out $15,000, their net income reflects the cash flow, which results in a net income of $0 after accounting for expenses.
A) $0
This option is correct because, under cash accounting, the company recognizes only the $5,000 received in payments as income. The expenses, which total $10,000 ($5,000 to supply houses and $5,000 for bills), exceed the cash income, leading to a net income of $0.
B) $5,000
This option is incorrect because it suggests that the net income corresponds to the total cash received. However, the expenses incurred ($10,000) surpass the cash inflow, which invalidates this option.
C) $15,000
This option is incorrect as it reflects the total amount billed out rather than cash received. Under cash accounting, only cash transactions are considered, and since no income is recognized until payment is received, this figure does not apply.
D) $20,000
This option is also incorrect because it inaccurately combines the billed amount with the expenses. Net income is calculated as cash received minus expenses, and thus this figure does not represent the company's actual financial outcome for the month.
Conclusion
The only accurate reflection of the company's net income, considering the cash accounting method, is $0. All other options fail to recognize that net income must account for cash inflows against cash outflows, resulting in no profit for the month.