Question

Green Company incurred $5,000 of accrued expenses during Year 1, but paid the cash associated with the payables in Year 2. Based on this information alone, under accrual accounting, the company would report a net loss of ______.

Multiple select question.
A} zero and cash outflow from operations of $5,000 in Year 1
B}zero and cash outflow from operations of $5,000 in Year 2
C}$5,000 and cash outflow from operations of zero in Year 2
D}$5,000 and cash outflow from operations of zero in Year 1

Answer 1

Under accrual accounting, Green Company would report a net loss of $5,000 in Year 1 due to the incurred expenses and a cash outflow from operations of $5,000 in Year 2 when the expense is paid.

Step-by-step explanation:

When accounting for the expenses under accrual accounting, the company records expenses when they are incurred, regardless of when the cash payment is made. In this scenario for Green Company, the $5,000 of accrued expenses would be recorded as an expense in Year 1, which would be subtracted from the revenues to determine the net profit or loss for the year. Assuming no other information is provided about revenues or additional expenses, the $5,000 expense in Year 1 would lead the company to report a net loss of $5,000 in Year 1, and it would result in a cash outflow from operations of $5,000 in Year 2 when the cash is actually paid.

Therefore, the correct options based on the given information alone would be:

C) A net loss of $5,000 and cash outflow from operations of zero in Year 1.

• B) Zero and cash outflow from operations of $5,000 in Year 2.