During April,the Grass is Greener Company buys and pays for a six-month supply of fertilizer in order to receive a bulk discount.The company uses accrual basis accounting.The cost of fertilizer recorded:
A) immediately as an expense.
B) as a liability, which will later be reduced as the fertilizer used.
C) partially as an expense and partially as a liability.
D) as an asset, which will later be reduced as the fertilizer is used.

Question

Quizplus · Accepted Answer

Since the Grass is Greener Company uses accrual basis accounting, the cost of the six-month supply of fertilizer should be recorded as an asset on the balance sheet. This asset will be later reduced as the fertilizer is used, and the corresponding expense will be recorded on the income statement. This method of recording the cost of the fertilizer matches the principle of matching expenses with revenues, which is a key aspect of accrual accounting.

During April,the Grass Is Greener Company Buys and Pays for a Six-Month