Question

Consider the following transactions: 1. The company uses supplies purchased in the previous period, $1,500. 2. The company pays cash for inventory, $6,000. 3. The company repays a loan to the bank, $10,000 (ignore any interest cost). The amount of accrual-basis expense is _____ while the amount of cash-basis expense is _____.
A. $6,000; $16,000
B. $6,000; 11,500
C. $1,500; 16,000
D. $7,500; $17,500
E. $1,500; $6,000

Answer 1

Answer:

E. $1,500; $6,000

Explanation:

In accrual basis, expenses are recognized once it is incurred. In cash basis, expenses are only recorded when cash is paid. As such,

when company uses supplies purchased in the previous period, $1,500, no expense is recorded.

when the company pays cash for inventory, $6,000, an expense for $6,000 is recorded.

Therefore  the amount of accrual-basis expense is $1,500 while the amount of cash-basis expense is $6,000.