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College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570

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BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

Considering the following events, determine which month the revenue or expenses would be recorded using the accounting method specified.

  1. a. Gerber Company uses the cash basis of accounting. Gerber prepays cash in May for insurance that only covers the following month, (June).
  2. b. Matthews and Dudley Attorneys uses the accrual basis of accounting. Matthews and Dudley Attorneys receives cash from customers in June for services to be performed in July.
  3. c. Eckstein Company uses the accrual basis of accounting. Eckstein prepays cash in October for rent that covers the following month, (October).
  4. d. Gerbino Company uses the cash basis of accounting. Gerbino makes a sale to a customer in February but does not expect payment until March.

To determine

Indicate the month in which revenue or expenses would be recorded, based on the basis of accounting method used by the company.

Explanation

Cash basis accounting: The method of accounting which recognizes revenues when they are received, and recognizes expenses when they are paid, is referred to as cash basis accounting.

Accrual basis accounting: The method of accounting which recognizes revenues when it is earned though not received, and recognizes expenses when it is incurred though not paid, is referred to as accrual basis accounting.

Indicate the month in which revenue or expenses would be recorded, based on the basis of accounting method used by the company.

a.

Company G records the expense in the month of May because company uses cash basis accounting and cash is paid in May.

b...

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