On July 1, Year 1, a company paid $48,000 for 24 months of advance rent on its warehouse. Assuming the company has a December year end, what would be the amount of rent expense in Year 1 under cash basis versus accrual accounting? a. Cash basis = $24,000; Accrual = $24,000. b. Cash basis = $48,000; Accrual = $12,000. c. Cash basis = $12,000; Accrual = $36,000. d. Cash basis = $48,000; Accrual = $24,000.

Question

Business

Alonso Castaneda

7 September, 16:51

On July 1, Year 1, a company paid $48,000 for 24 months of advance rent on its warehouse. Assuming the company has a December year end, what would be the amount of rent expense in Year 1 under cash basis versus accrual accounting? a. Cash basis = $24,000; Accrual = $24,000. b. Cash basis = $48,000; Accrual = $12,000. c. Cash basis = $12,000; Accrual = $36,000. d. Cash basis = $48,000; Accrual = $24,000.

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Answers (1)

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Emma Weiss · Answer 1

b. Cash basis = $48,000; Accrual = $12,000

Explanation:

Under the cash basis, the whole amount that is received should be reported i. e. $48,000

While in the accrual basis, the amount which is actually received in a current financial year should be recorded

Since $48,000 is for 24 months

So for one month, it would be

= $48,000 : 24 months

= $2,000

And, from July 1 to December 31, it have 6 months

So, the total amount is

= $2,000 * 6 months

= $12,000