Question

A company purchased $400 of office supplies on account during May. All the supplies were used in May, and the account was paid during June. What would the impact of these transactions be during May on (1) the balance of cash, (2) cash-basis net income, and (3) accrual-basis net income?

Answer 1

Answer:

What would the impact of these transactions be during May on

• (1) the balance of cash NO EFFECT, the account balance was not paid in May

• (2) cash-basis net income: NO EFFECT, the account balance was not paid in May

• (3) accrual-basis net income: DECREASE, even though the debt was not paid, the expense had already been recognized, therefore, the accrual-basis net income decreases