ncepts Help SaveExit Knowledge Check 01 On July 1 Year 1 a c

ncepts Help Save&Exit; Knowledge Check 01 On July 1, Year 1, a company paid $48,000 for 24 months of advance rent on its warehouse. Assuming the company has a December year end, what would be the amount of rent expense in Year 1 under cash basis versus accrual accounting? Multiple Choice Cash basis $24,000 Accrual $24,000 Cash basis $48.000 Accrual $12.000 MacBook Air 3 4 5 6

Solution

Answer to Question 1:

Rent per month = 48000/24= 2000

Under cash basis the total cash flow is recognised irrespective of the accounting period. Therefore under cash basis whole of $48,000 is recognised in year 1.

Under accrual basis only that expense which pertains to current financial year is recognised.

July to December , Year 1= 6 months

Rent for 6 months=6*2000=12,000

The correct option is Cash basis= $48,000 ; Accrual Basis= $12,000