The _____ would result in a decrease in net income under the cash basis, but it would not result in a decrease in net income under the accrual basis.
A)purchase of inventory on account
B)payment of two months of rent in advance
C)expiration of prepaid rent
D)recognition of depreciation expense

Question

Quizplus · Accepted Answer

Under the cash basis of accounting, expenses are recognized when cash is paid out. Therefore, paying two months of rent in advance would decrease net income immediately under the cash basis. However, under the accrual basis, this payment is recorded as a prepaid expense (an asset) and expensed over the period it benefits, so it does not decrease net income until the rent period occurs.

The _____ Would Result in a Decrease in Net Income