A company receives services in December but pays for them in January. Under accrual accounting, when is the expense recorded?
Correct answer: C. When the service is received in December
- A. When payment is made in January
- B. When the annual budget is approved
- C. When the service is received in December
- D. When the supplier sends a reminder
Explanation
Accrual accounting records expenses when they are incurred, rather than when cash is paid. Since the service is received in December, the expense belongs to December.
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Accounting principles explain the rules used to record, classify and report business transactions. Coverage includes the accounting equation, double-entry system, accrual and cash bases, matching and prudence concepts, consistency, going concern, business entity, and the difference between capital and revenue items.
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