A dance studio accepts $1,500 to provide a series of dance lessons to a youth group during the month of July.The studio decides to record the revenue in July.The studio incurs rent,utilities,and salaries expenses in July.The studio decides to record those expenses in August,when it pays for them.One or both of these decisions:
A)violate the expense recognition principle.
B)are an example of accrual accounting.
C)violate the revenue recognition principle.
D)violate both the expense recognition and revenue recognition principles.

Question

Quizplus · Accepted Answer

Under accrual basis accounting,expenses are recognized in the same period as the revenues to which they relate.Expenses are reported when the company uses something in the current period.Recording the July rent,utilities,and salaries expenses in August violates the expense recognition principle.According to the revenue recognition principle,revenues should be recognized when the performance obligation is satisfied.Since the dance lessons will be provided in July,the related revenue should be recorded in July.

A Dance Studio Accepts $1,500 to Provide a Series of Dance