Baker Co. uses the accrual basis of accounting. Baker Co. prepays cash in May for insurance that covers only the month of June. Which of the following statements is true?

Question

Quizplus · Accepted Answer

Under the accrual basis of accounting, expenses should be recognized in the period in which they are incurred, regardless of when they are paid. Since the insurance expense covers the month of June, it should be recorded in June when it is incurred, not in May when the cash is paid. Therefore, Baker Co. should record the insurance expense in June.

Baker Co Uses the Accrual Basis of Accounting