Question

The following information pertains to Sooner Company: May 1 Customer ordered an installation service to be done by Sooner Company on May 15. May 2 Customer paid cash for the installation job to be done on May 15. May 8 The Sooner Company purchased installation supplies on account for the job. May 15 The installation job was started and completed. May 20 Amount owed for supplies purchased on May 8 is paid.Assuming that Sooner Company uses accrual-basis accounting, when would the company record the expense related to the supplies?

Answer 1

Complete Question:

Assuming that Sooner Company uses accrual-basis accounting, when would the company record the expense related to the supplies?

A. May 2

B. May 8

C. May 15

D. May 20

Answer:

May 15th company would record the expense related to the supplies.

Explanation:

Accrual basis is a way to report income and costs incurred in financial activities. The accrual justification includes the use of purchase tax deductions, bad debts and technological progress of inventories, which arise in advance of these products.

An illustration of accrual accounting is to report sales as soon as the consumer gets the associated invoice.

Although it is more complex and nuanced than cash accounts, most businesses use accrual accounting as normal accounting procedure. Many companies have postponed accounts due and accounts receivable for a long time, for example, selling credit or ventures generating revenue streams. These incidents also change the finances of the firm although no cash is earned automatically.