Final Answer:
Under the accrual accounting basis, Jones Inc. should recognize the utility expense of $10,500 in December, despite the payment being scheduled for January. This ensures that expenses are matched with the period in which they are incurred, reflecting a more accurate portrayal of the company's financial performance.
Step-by-step explanation:
Accrual accounting requires the recognition of expenses when incurred, not necessarily when they are paid. In this case, the $10,500 utility bill for December's usage must be recorded in the same period to which it pertains. This adherence to the matching principle ensures that financial statements accurately depict the company's financial performance during a specific time frame. The recognition of the expense in December aligns with the principle of matching revenues with expenses, providing stakeholders with a more realistic view of the company's profitability.
By recognizing the utility expense in December, Jones Inc. adheres to the accrual accounting principle and accurately reflects the economic impact of December's utility usage on its financial statements. Delaying the recognition to January would misrepresent the company's December performance and distort the assessment of its financial health. The entry to recognize the expense in December would involve debiting the Utility Expense account and crediting the Accrued Liabilities account, reflecting the obligation to pay in the following month. This approach ensures transparency and accuracy in financial reporting, helping stakeholders make informed decisions based on the company's actual economic activities.
In summary, recognizing the $10,500 utility expense in December, despite the payment being in January, adheres to the accrual accounting principle. This approach aligns with the matching principle and provides a more accurate representation of Jones Inc.'s financial performance during the period in question.