Back to Questions
SSC Financial and Cost Accounting P-1 QUESTION #9612
Question 1
Under the accrual basis of accounting, an electricity bill for January is received on 15th February and paid on 25th February. In which month should this expense be recorded?
  • February, when the bill is received
  • February, when the bill is paid
  • January, when the benefit was consumed✔️
  • It may be recorded in either January or February at the entity's discretion
Correct Answer Explanation
Accrual accounting records expenses when incurred (i.e., when the benefit is consumed), not when cash is paid. Since electricity was consumed in January, the expense belongs to January. This is the core distinction between cash accounting and accrual accounting.