Question

In Year 1, Costello Company performed work for a customer and billed the customer $14,000. In Year 2, the customer pays Costello Company for the services it rendered in Year 1. In Year 1, the company incurred $6,000 of wage expense, but it did not pay the employees until Year 2. If Costello Company uses the cash-basis of accounting, then it will report(A) revenue of $14,000 and expense of $6,000 in Year 2. (B) revenue of $14,000 in Year 1 and expense of $6,000 in Year 2. (C) no revenue or expenses in either year. (D) revenue of $14,000 and expense of $6,000 in Year 1. (E) revenue of $14,000 in in Year 2 and expense of $6,000 in Year 1.

Answer 1

Its A

Step-by-step explanation:

This accounting system is based on the principle of recording transactions at the time they are paid or collected, regardless of when they were made. In other words, it does not use the accrual criteria.

It should be noted that this system is the least accepted by the companies

In this case the company sells in year 1 for 14,000, and the customer cancels its debt in year 2.

And the same happens with salary expenses, they correspond to year 1, but they are paid in year 2.

In both cases, it is paid the year following the moment in which the event "occurred". Upon collection and payment, registration is made