Question

1. Expense recognition – accrual basis vs. cash basis: Ring The Bells, Inc. provides doorbell repair services to customers. On November 7^th, Ring The Bells, Inc. paid $350 in cash to the utility company for utilities used in October. On November 16^th, 2018, Ring The Bells, Inc. paid $4,800 in cash in advance for the next 12 months’ rent, covering rent for the period of December 1, 2018 – November 30, 2019. On November 30^th, 2018 Ring the Bells paid $1,000 in cash for November’s advertising expenses.
   1. Using accrual-basis accounting, how much in expenses would Ring the Bells record for November 2018? Briefly explain or show how you got your answer.
   2. Using cash-basis accounting, how much in expenses would Ring the Bells record for November 2018? Briefly explain or show how you got your answer.

Answer 1

Under accrual-basis accounting, expense is recognized when incurred irrespective of when cash is paid
Under cash-basis accounting, expense is recognized when cash is paid
a
November 07	0
November 16	0
November 30	1000
Expense under accrual-basis accounting	1000
b
November 07	350
November 16	4800
November 30	1000
Expense under cash-basis accounting	6150