Question - In its first year of operations, Pharoah Company recognized $34,000 in service revenue, $8,100 of which was on account and still outstanding at year-end. The remaining $25,900 was received in cash from customers.

The company incurred operating expenses of $17,100. Of these expenses, $12,940 were paid in cash; $4,160 was still owed on account at year-end. In addition, Pharoah prepaid $2,780 for insurance coverage that would not be used until the second year of operations.

(a) Calculate the first year's net earnings under the cash basis of accounting, and the first year's net earnings under the accrual basis of accounting.