Under accruals, which item would be included in the current year's accounts?

Under accruals, which item would be included in the current year's accounts?

• A. Advertising prepaid for next year.
• B. Electricity bill for the current year.
• C. Revenue received in advance for next year's services.
• D. Cash on hand.

Answer: (B)

Accruals require recognizing expenses when they are incurred and revenues when they are earned, regardless of when cash moves. The electricity bill for the current year fits this: the service was consumed during the current year, so the cost is recorded as an expense in this year’s accounts, and if it hasn’t been paid yet, a corresponding liability is created for the amount owed. Advertising prepaid for next year is a prepaid asset and will be charged to expense in the next period when the benefit is used. Revenue received in advance for next year’s services is a liability (unearned revenue) until the services are performed. Cash on hand is simply an asset and does not by itself represent an accrual entry for the year.

Accruals require recognizing expenses when they are incurred and revenues when they are earned, regardless of when cash moves. The electricity bill for the current year fits this: the service was consumed during the current year, so the cost is recorded as an expense in this year’s accounts, and if it hasn’t been paid yet, a corresponding liability is created for the amount owed.

Advertising prepaid for next year is a prepaid asset and will be charged to expense in the next period when the benefit is used. Revenue received in advance for next year’s services is a liability (unearned revenue) until the services are performed. Cash on hand is simply an asset and does not by itself represent an accrual entry for the year.