Cash                           AR                              AP

 60,000                 BB: 20,000           BB: (30,000)

 20,000                  Add: 20,000         Less: 15,000

 15,000                 

 95,000                  EB: 40,000           EB: (15,000)

AR: Under the cash basis the 20,000 would not be added into net income because no cash was received. Under the accrual basis Sales would be credited and AR would be debited. However, if AR decreased that would mean cash was received and that cash would be included in cash basis income. Under the accrual basis the cash received from the beginning balance would have been recognized in Sales last year so it would be backed out when converting to the accrual basis.

AP: Under the cash basis the 15,000 decrease would indicate cash was paid and would be deducted from cash basis income. Under the accrual basis, the entries to record the expenses in the beginning balance (30,000) were expensed on the income statement in a prior period, so they are added back to cash basis income. However, if the AP had increased that would mean we incurred expenses that we had not paid for in cash so they would be deducted from cash basis income.