can someone let me know if this discussion board answer is correct? I have to respond to my classmate answer
Case I
Executive Lawn provides $100 of landscape maintenance to Peterson Law on April 10.
Scenario b.
Peterson pays for the lawn service on April 10, the day of service
1. If Peterson Law uses accrual-basis accounting, for the scenario you select, on which date would Peterson Law record the $100 expense? Explain the reason for your answer.
Using accrual-basis accounting, the expenses are recorded when revenues are recorded, and not when they are paid. According to the matching principle, it is beneficiary to match the expenses with the revenues that they relate to, for the main fact that this will help a company to recognize the costs that are generated in order to earn these revenues. If expenses cannot be matched with revenues, then the expenses should be recorded in the current period. In other words, they should be recorded when activity occurs.
In this scenario, the Peterson Law should record the $100 on April 10th, the day of the service. The landscape maintenance doesn’t seem to generate any revenue for the Peterson Law.
2. If Peterson Law uses cash-basis accounting, for the scenario you select, on which date would Peterson Law record the $100 expense? Explain the reason for your answer.
If the Peterson Law uses cash-basis accounting, the expenses should be recorded on April 10th. Under the cash basis of accounting, the expenses are reported when they're actually paid. In this case the Peterson Law paid Executive Lawn on April 10th.
11 years ago
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