A business received its electricity account for the month of November which showed usage of $100. The account was due to be paid in December. Which of the following is true? Question 1 Answer Both cash accounting and accrual accounting would record the expense in December Under accrual accounting, the expense would be recorded in November Under cash accounting, the expense would be recorded in November Both cash accounting and accrual accounting would record the expense in November
Question
A business received its electricity account for the month of November which showed usage of $100. The account was due to be paid in December. Which of the following is true? Question 1 Answer
Both cash accounting and accrual accounting would record the expense in December
Under accrual accounting, the expense would be recorded in November
Under cash accounting, the expense would be recorded in November
Both cash accounting and accrual accounting would record the expense in November
Solution
The correct answer is: "Under accrival accounting, the expense would be recorded in November".
Here's why:
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Cash accounting records expenses and income when they are actually paid or received. So, in this case, since the electricity bill is paid in December, cash accounting would record the expense in December.
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Accrual accounting, on the other hand, records expenses and income when they are incurred or earned, regardless of when the money is actually paid or received. So, since the electricity was used (and thus the expense was incurred) in November, accrual accounting would record the expense in November.
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