Question

Q 4.24: At the end of March, Paul’s Painting hired five temporary employees to work on a project that began on April 5 and ended on April 28. Paul’s received 100% of the total payment for the project on May 3. In this situation, both ________ accounting and GAAP require that Paul’s recognize the employees’ total salary expense in

Answer 1

Answer:

At the end of March, Paul’s Painting hired five temporary employees to work on a project that began on April 5 and ended on April 28. Paul’s received 100% of the total payment for the project on May 3. In this situation, both cash basis accounting and GAAP require that Paul’s recognize the employees’ total salary expense in April.

Explanation:

A collection of accounting rules and standards usually followed, for financial reporting is known as GAAP (generally accepted accounting principles) .

For businesses, GAAP needs accrual accounting.

Accrual accounting operates on the basis of matching both revenue and expenses. Revenues and the related expenses occur concurrently, though the cash transaction concerning thereto might happen in some other period.

In the situation given in the question, the revenue from the project is earned in April, subsequently, the salary expense related to that work should also be recognized in the same period due to an accrual basis.

Answer 2

Answer:

Accrual-basis, April

Explanation:

Accrual basis of accounting stipulates that revenue should be recognized when earned while expense should be recognized in the books when incurred.

Earning a revenue implies that the person has discharged his or her obligation under the contract  with the buyer in terms of having the delivered the goods requested for or provided the services sought for.

Incurring an expense implies that the company such Paul's painting has enjoyed the services demanded for ,such as having enjoyed the services of the temporary employees in the April,hence their salaries should be recorded as expense in April.

The same approach to recording expense to GAAP-U.S GAAP as wells as IFRS