Question

We receive a bill on December 31 for $5,000 of property taxes we owe for the old year that we will not pay until January 6 of the new year. Record the follow-up entry to account for the amount we paid on January 6 of the next year.

Answer 1

On December 31, a debit entry to Tax Expense and a credit entry to Taxes Payable is made for $5,000. On January 6, when the tax is paid, a debit entry to Taxes Payable and a credit entry to Cash for $5,000 are made, reflecting payment and cash outflow.

Step-by-step explanation:

The question pertains to accounting for the payment of property taxes that were billed in the old year but paid in the new year. On December 31, the company would need to recognize the tax expense and the associated liability since it relates to the old year. The entry on December 31 would be a debit to Tax Expense for $5,000 and a credit to Taxes Payable for $5,000.

Then, when the payment is made on January 6 of the new year, the entry would involve reducing the liability and recording the cash outflow. The accounting entry on January 6 would be a debit to Taxes Payable for $5,000 and a credit to Cash for $5,000. This records the payment of the property taxes and the reduction of the company's cash balance.