Which of the following circumstances would result in a decrease in income under the accrual basis but would not result in a decrease in income under the cash basis?
A)Purchase of inventory on account
B)Payment of 2 months' rent in advance
C)The expiration of prepaid rent
D)The return of defective inventory purchased on account,where full credit was given
E)The payment of the current period's utility bill

Question

Quizplus · Accepted Answer

Under the accrual basis, prepaid rent is initially recognized as income when received but is gradually recognized as it expires or is used. Its expiration results in a decrease in income. However, under the cash basis, prepaid rent is only recognized as income when received and is not affected by its expiration. The other options would result in a decrease in income under both the cash basis and the accrual basis.

Which of the Following Circumstances Would Result in a Decrease