PRC-1 · Chapter 10 · Question 35 of 100
A business receives an electricity bill for December on January 5th of the following year. How should this be handled in the financial statements for the year ended December 31?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) An accrual should be created by debiting Electricity Expense and crediting Accrued Expenses for the year ended December 31.
Explanation
The matching principle requires that the expense for December's electricity be recognized in December, even if the bill arrives or is paid in January. An accrual achieves this.
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