Question

Consider the following transactions: The company uses supplies purchased in the previous period, $1,500. The company pays cash for rent in advance, $6,000. The company repays a loan to the bank, $10,000 (ignore any interest cost). The amount of accrual-basis expense is ________ while the amount of cash-basis expense is ________.

Answer 1

The amount of accrual-basis expense is __$ 7500______ rent and supplies expense

while the amount of cash-basis expense is __$10,000______ Loan repayment.

Step-by-step explanation:

The Accrual basis of accounting states that expenses or revenues to be recorded in the month they are incurred but cash basis states that revenues or expenses to be recorded in the month of receipt or payment. As loan is a liability and is being paid then it can be adjusted on a cash basis but rent and supplies relate to different months so they can be adjusted on an accrual basis.