What would be the effect on December's statement of earnings of a utility bill received on December 27, 2013 but which will not be paid until January 10, 2014?
A) No expense will be recognized until the bill is paid in January
B) We would cause an increase in proﬁt by recording the expense in December
C) Recording the expense in December when it is incurred will increase expenses
D) Proﬁt will be decreased when we pay the bill in January

Question

Quizplus · Accepted Answer

Recording the expense in December, when it is incurred, aligns with the accrual basis of accounting. This method recognizes expenses when they are incurred, not when they are paid, thus increasing expenses for December.

What Would Be the Effect on December's Statement of Earnings