Which of the following entries would be recorded by a company that uses the cash basis method of accounting? A. Salaries Expense 1,000 Salaries Payable 1,000 B. Rent Expense 1,000 Cash 1,000 C. Cash 1,000 Accounts Receivable 1,000 D. Prepaid Rent 1,000 Cash 1,000

Question

Business

Taylor Conley

23 November, 07:17

Which of the following entries would be recorded by a company that uses the cash basis method of accounting? A. Salaries Expense 1,000 Salaries Payable 1,000 B. Rent Expense 1,000 Cash 1,000 C. Cash 1,000 Accounts Receivable 1,000 D. Prepaid Rent 1,000 Cash 1,000

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Answers (1)

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Brody Burnett · Answer 1

B is the correct option, because it indicates that rent expense was only recognized in the books of account when paid for in cash.

Explanation:

Cash basis of accounting simply implies that an organization that adopts it recognizes income when received and expense when paid for in cash.

The above is different from accrual basis, where income is recognized when earned (when obligation is discharged by the seller) and expense when incurred (when the goods involved or services have been received)

All other options except B have something to do with payment on account, hence they are wrong.