Munoz Co. prepays cash in October for insurance that covers only the month of November. Munoz Co. records the expense in October. Which method of accounting is Munoz Co. using?

Question

Quizplus · Accepted Answer

Munoz Co. is using the cash basis of accounting because it is recording the expense at the time when the cash is paid, rather than when the insurance is actually used in November. With the cash basis, revenue and expenses are recognized only when cash is received or paid.

Munoz Co Prepays Cash in October for Insurance That Covers Only