Question

In Year 1, Costello Company performed work for a customer and billed the customer $12,000. In Year 2, the customer pays Costello Company for the services it rendered in Year 1. In Year 1, the company incurred $4,000 of wage expense, but it did not pay the employees until Year 2. If Costello Company uses the accrual-basis of accounting, then it will report _________.

Answer 1

Answer:

Year 1  

 

Db Account receivable_ 12000  

Cr Revenue__________________________  12000

 

Db Wages expenses__ 4000  

Cr Accoun payable wages_____________  4000

 

 

Year 2  

Db Cash_____________ 12000  

Cr Account Receivable_________________  12000

 

Db Account payable wages 4000  

Cr Cash _____________________________  4000

Explanation:

Accrual basis is a method of recording accounting transactions for revenue when earned and expenses when incurred..

A key advantage of the accrual basis is that it matches revenues with related expenses, so that the complete impact of a business transaction can be seen within a single reporting period