Q. 3-1SE-a - Horngren'S Financial And Managerial Accounting

Question

The Pink Peonies Law Firm prepays for advertising in the local newspaper. On January 1, the law firm paid $3,000 for 10 months of advertising. How much advertising expense should Pink Peonies Law Firm record for the two months ending February 28 under the a. cash basis? b. accrual basis?

Step-by-Step Solution

Answer

Advertising expense equals $3,000. 

Explanation on Cash Basis Accounting

Cash basis accounting records the revenues and expenses on the basis cash receipts or payments.

Explanation on Advertising Expense

In the given case, firm paid $3,000 for advertising expense for ten months in cash. As per cash basis accounting, total $3,000 will be treated as advertising expense.