Can someone please solve this question with T-accounts. This is a question from Wiley and the answer is $165,000

Young & Jamison’s modified cash-basis financial statements indicate cash paid for operating expenses of $150,000, end-of-year prepaid expenses of $15,000, and accrued liabilities of $25,000. At the beginning of the year, Young & Jamison had prepaid expenses of $10,000, while accrued liabilities were $5,000. If cash paid for operating expenses is converted to accrual-basis operating expenses, what would be the amount of operating expenses?

125,000

175,000

135,000

165,000

1.  Begin with 150,000 in cash basis operating expenses:

2. Prepaid expenses (asset) increase 5,000. The 5,000 would have increased the cash basis operating expenses. However is they are prepaid so they should not hit the income statement until they are incurred. So the 5,000 will reduce the cash basis operating expenses when converting to the accrual basis.

3. Accrued Liabilities increased by 20,000. This indicates that we incurred 20,000 in operating expenses that were not included in the 150,000 cash basis expenses. Therefore we have to add the 20,000 in operating expenses when we convert to the accrual basis.

Astone,

Thanks for the wonderful explanation. Where can I find information on how to convert from cash to accrual basis?