The primary disadvantage of the cash basis of accounting is that revenues and expenses may not…

1. Using the January 1 and December 31, 2004 data , answer the following questions.

(a) If Palmetto paid $18,000 of dividends during 2004, what was the amount of net income for 2004?

(b) Under the cash basis, will Palmetto’s cash flows from operating activities be the same as its net income?

2. The primary disadvantage of the cash basis of accounting is that revenues and expenses may not always be properly matched on the income statement. Explain.

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