Question

The Pink Peonies Law Firm prepays for advertising in the local newspaper On January 1, the law firm paid 54 800 for six months of advertising How much advertising expense should Pink Peonies Law Firm record for the two months ending February 28 under the a. cash basis? b. accrual bash? a. Under the cash basis, for the two months ending February 28the law firm should record advertising expense of

Answer 1

As per cash system of accounting, expenses and income are recorded at the time cash is paid irrespective of whether the expense or income are actually accrued or not.

As per accrual system of accounting, expenses and income are recorded on accrual of the respective expense or income irrespective of whether cash is paid or not.

a. Under the cash basis, for the two months ending February 28, the law Firm should record advertising expense of $4,800

b. Under the accrual basis, for the two months ending February 28, the law Firm should record advertising expense of $1,600

Accrued Expense = 4,800 x 2/6

Accrued Expense = $1,600