In its first year of operations, Sheridan Company recognized $33,800 in service revenue, $7,200 of which was on account and still outstanding at year-end. The remaining $26,600 was received in cash from customers. The company incurred operating expenses of $19,300. Of these expenses, $13,670 were paid in cash; $5,630 was still owed on account at year-end. In addition, Sheridan prepaid $3,230 for insurance coverage that would not be used until the second year of operations.
Required:
1. Calculate the first year's net earnings under the cash basis of accounting, and the first year's set earnings under the accrual basis of accounting.
2. Which basis of accounting (cash or accrual) provides more useful information for decision-makers?