A company has the following transactions:1. Pay employees' salaries for the current period. 2. Pay rent in advance. 3. Pay dividends to stockholders in the current period. 4. Receive (but do not pay) a utility bill. 5. Use supplies previously purchased. How many of these transactions result in an expense being reported in the current period using cash-basis accounting?

Question

Business

Crystal Graves

1 January, 21:17

A company has the following transactions:1. Pay employees' salaries for the current period. 2. Pay rent in advance. 3. Pay dividends to stockholders in the current period. 4. Receive (but do not pay) a utility bill. 5. Use supplies previously purchased. How many of these transactions result in an expense being reported in the current period using cash-basis accounting?

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Answers (1)

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Alessandra Cunningham · Answer 1

The first 3 transactions only.

Explanation:

Accrual basis of accounting requires that expenses and revenue are recognized in the books as soon as they are incurred and earned respectively.

The cash basis required that transactions of expenses and revenue be recognized only when cash has been paid and received respectively.

Considering the transactions using cash-basis accounting,

1. Pay employees' salaries for the current period - Yes an expense will be recognized.

2. Pay rent in advance - Yes an expense will be recognized for the full amount paid.

3. Pay dividends to stockholders in the current period - Yes an expense will be recognized for the full amount paid.

4. Receive (but do not pay) a utility bill - No, this will be recognized when cash is paid

5. Use supplies previously purchased - This would have been recognized previously. No