Question

In December 2019, Swanstrom Inc. receives a cash payment of $3,500 for services performed in December 2019 and a cash payment for $4,500 for services to be performed in January 2020. Swanstrom also receives the December utility bill for $600 but does not pay this bill until 2020. For December 2019, under the accrual basis of accounting, Swanstrom would recognize:

Answer 1

Answer:

$3,500 of revenue and $600 of expense.

Explanation:

In the accrual basis, revenues are cognized when earned and expenses are recognized when incurred.

According to  revenue principle, accountants should record revenue when it has been earned. This means when the service is provided, when the product is delivered, when company has completed the sale agreement (earnings process is complete).

The amount of revenue that should be recorded, is the value of the service or product transferred to consumer.

in this case, the services performed where $3,500 and the expenses that where incurred where $600.