contestada

On December 1, 2015, a company pays $3,600 for a 36-month insurance policy. After one month,
accrual accounting requires _______(100/3,600) of insurance expense be reported on the income
statement ending December 31, 2015. However, if cash basis accounting is used, _______
(100/3,600) of insurance expense would be reported at the time of purchase.

Respuesta :

mchaid015

Answer:

Accrual accounting requires $100 insurance expense

Cash basis accounting recognized $3,600 insurance expense

Explanation:

Using accrual basis of accounting, the company will recognize expenses when incurred whether paid or not. Thus during 2015, the company's expense in insurance is from December 1 to December 31 only. So $3,600 divided by 36 months is $100.

When Cash basis accounting is used all expenses with actual cash outflow will be recognized. Thus, the whole amount of $3,600 insurance policy will be charged to insurance expense as a whole during the year 2015.