1 answer

Al is a medical doctor who conducts his practice as a sole proprietor. During 2019, he...

Question:

Al is a medical doctor who conducts his practice as a sole proprietor. During 2019, he received cash of $592,600 for medical services. Of the amount collected, $52,800 was for services provided in 2018. At the end of 2019, Al had accounts receivable of $93,100, all for services rendered in 2019. In addition, at the end of the year, Al received $16,000 as an advance payment from a health maintenance organization (HMO) for services to be rendered in 2020.

a. Compute Al's gross income for 2019 using the cash basis of accounting.
$

b. Compute Al's gross income for 2019 using the accrual basis of accounting.
$

c. Advise Al on which method of accounting he should use.

Al should use the   of accounting so that he will not have to pay income taxes on the  .


Answers

AI’s Gross Income For 2019 using Cash Basis of Accounting

Particulars Amount($)
For Medical Services 592600
Advance From HMO 16000
Gross Income For 2019 608600


AI’s Gross Income For 2019 using Accrual Basis of Accounting

Particulars Amount($)
For Medical Services Rendered In 2019. ( As per working Note 1 ) 632900
Gross Income For 2019 632900

Working Note 1:

Accounts Receivable A/c

Particulars Debit Particulars Credit

Opening Balance

(assumed that all money received for 2018 is opening balance)

52800 Cash Received During 2019 592600
For Medical Services Rendered In 2019 (Balancing Figure) 632900 Closing Balance 93100
Total 685700 Total 685700


AI should use Cash method of accounting for computing Gross Income.As in Cash Basis of accounting gives low amount of Gross Income.

.

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