-End of Fiscal year is Dec 31, 2009

-A Comprehensive Insurance policy requires a payment every year for the upcoming year. The last payment of 12,000 was made on Sep 1, 2009.

-At the end of the current year, various Credit Card companies owed Mr Pitts 6,500. At the end of 2008 outstanding charges were 5,000

-Employees are paid once a month on the Tenth of every month. Cash Disbursements to employees were 8,200 and 7,200 for January 10, 2010, and Jan 10, 2009.

-Utility bills outstanding totaled 1,200 at the end of 2009 and 900 for 2008.

-Physical count of inventory is always taken at the end of the fiscal year. The merchandise on hand at the end of 2009 cost 35,000. At the end of 2008, inventory on hand cost 32,000.

-At the end of 2008, Mr Pitts did not have any bills outstanding to suppliers of merchandise. However, at the end 2009, he owed suppliers 4,000.

1) Mr Pitts 2009 cash basis net income (Including depreciation expenses) is 26,000. Determine net income applying the accrual accounting model.

2)Explain the effects on Mr Pitts balance sheet of converting from cash to accrual. That is, would assets, liabilities, and owner's equity be higher or lower and by what amounts.