The following information pertains to Sooner Company: on May 1, the customer ordered an installation service to be done by Sooner Company on May 15. On May 2, customers paid cash for the installation job to be done on May 15. On May 8, The Sooner Company purchased installation supplies on account for the job. On May 15, the installation job was started and completed. May 20 Amount owed for supplies purchased on May 8 is paid. Assuming that the Sooner Company uses accrual-basis accounting, when would the company record the expense related to the supplies?
Business · High School · Thu Feb 04 2021
Answered on
Under accrual-basis accounting, expenses are recorded when they are incurred, regardless of when the cash payment for them is actually made. This means that expenses are matched with the revenues they help generate in the same period.
In the case of Sooner Company, the expense related to the installation supplies should be recorded on the date the supplies were used to generate the revenue, which is May 15 the day the installation job was started and completed. This is because the supplies are directly associated with the installation service provided to the customer. Therefore, the expense is recognized on May 15, regardless of the fact that the supplies were purchased on May 8 and paid for on May 20.