On December 19, 2012, Logo Inc., an accrual basis corporation, accrued $50,000 compensation expense for a routine year-end bonus payable to Mr. Craig, who is Logo's CFO. Logo paid the $50,000 to Mr. Craig on April 25, 2013. Which of the following statements is true?

Question

Quizplus · Accepted Answer

According to the accrual basis of accounting, expenses are recognized when incurred, not when paid. The $50,000 bonus was accrued in 2012 and therefore should have been deducted as an expense in that year. However, because the bonus was not actually paid until 2013, Logo cannot deduct the expense in 2012. This is the case regardless of whether Mr. Craig and Logo are related parties. Therefore, choices A, B, and D are all incorrect.