30.03.2023 - 11:06

Company A used $3,000 worth of office supplies this year but the costs were not paid for until next year. Which of the following is not a result of this transaction? a. An expense of $3,000 is recorded on this year’s income statement. b. There is a $3,000

Question:

Company A used $3,000 worth of office supplies this year but the costs were not paid for until next year. Which of the following is not a result of this transaction?

a. An expense of $3,000 is recorded on this year’s income statement.

b. There is a $3,000 credit in cash on the balance sheet.

c. An accrued expense of $3,000 is recorded as current liabilities on the balance sheet.

d. There is a $3,000 credit in office supplies on the balance sheet.

Answers (1)
  • fatal1ty
    April 9, 2023 в 11:37

    The correct answer is (b) There is a $3,000 credit in cash on the balance sheet.

    Explanation:

    In accrual accounting, expenses are recorded when they are incurred, not when they are paid. In this case, Company A used $3,000 worth of office supplies this year, which means that the expense of $3,000 should be recorded on this year's income statement (option a). However, since the costs were not paid for until the next year, there will be no credit of $3,000 in cash on the balance sheet (option b).

    Instead, an accrued expense of $3,000 is recorded as current liabilities on the balance sheet (option c) because the company owes this amount to its suppliers for the office supplies that were used but not yet paid for. Finally, there is a $3,000 credit in office supplies on the balance sheet (option d) because the supplies were purchased and are still owned by the company.

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