Macky McClung uses accrual accounting to keep the records of her toy store.She paid $15,000 on January 1 for rent for the three months January-March.To correctly report her expenses for the month of January,what must her accounting entry accomplish?
A)increase expenses by $5,000 and decrease assets by $10,000
B)increase expenses by $5,000 and decrease assets by $5,000
C)increase expenses by $10,000 and decrease assets by $5,000
D)decrease expenses by $5,000 and increase assets by $5,000

Question

Quizplus · Accepted Answer

Accrual accounting requires expenses to be recognized in the period they are incurred, regardless of when payment is made. Since the rent payment of $15,000 covers three months, only $5,000 applies to January (the current period). Therefore, the accounting entry should increase expenses by $5,000 and decrease assets by $5,000 to accurately report expenses for the month of January.

Macky McClung Uses Accrual Accounting to Keep the Records of Her