Question

Compensation accrued at year-end and paid four months later ________.

a. is recognized in the year it is paid.
b. is not deductible until it is paid.
c. is recognized in the year it is accrued.
d. is deductible in the year it is accrued.

Answer 1

Compensation accrued at year-end and paid four months later is recognized in the year it is accrued.

Step-by-step explanation:

The correct answer is c. is recognized in the year it is accrued. Compensation that is accrued at year-end but paid four months later is recognized in the year it is accrued. This is based on the accrual accounting principle, which states that income and expenses should be recognized when they are earned or incurred, regardless of when the cash is received or paid. In this case, the compensation has been earned or incurred by the employees in the current year, even though it will be paid in the following year.