Holten Farm sells new tractors and pays each salesperson a commission of $1,000 for each tractor sold.During the month of August,a salesperson,Fred,sold three new tractors.Holten Farm pays Fred on the 10th day of the month following the sale.Fred operates on the cash basis;Holten Farm operates on the accrual basis.Which of the following statements is true?

Question

Quizplus · Accepted Answer

Holten Farm, operating on the accrual basis, recognizes expenses when they are incurred, not when they are paid. Therefore, they will recognize the commission expense in August when the tractors were sold. Fred, operating on a cash basis, will recognize the revenue when he receives the payment, which is in September.

Holten Farm Sells New Tractors and Pays Each Salesperson a Commission