The Car Company uses the accrual basis of accounting. The company is having a poor year financially. In September, 2012, the company paid $3 million for advertisements that will run during the World Series in September and October of 2012. The bonus of the CEO is based on net income with a maximum bonus of $200,000. The CEO wants the accountant to record the advertising as prepaid advertising since he feels strongly that the advertising will benefit the company in both 2012 and 2013. This way, the expenses for 2012 will be reduced and he may still be able to get his 2012 bonus. How and when should the company record the advertisement? What principle is used to determine when the expense should be recorded?

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The Answer of The Car Company uses the accrual basis of accounting. The company is having a poor year financially. In September, 2012, the company paid $3 million for advertisements that will run during the World Series in September and October of 2012. The bonus of the CEO is based on net income with a maximum bonus of $200,000. The CEO wants the accountant to record the advertising as prepaid advertising since he feels strongly that the advertising will benefit the company in both 2012 and 2013. This way, the expenses for 2012 will be reduced and he may still be able to get his 2012 bonus. How and when should the company record the advertisement? What principle is used to determine when the expense should be recorded?

The Car Company Uses the Accrual Basis of Accounting