What would be the effect on December's income statement of a utility bill received on December 27,2011 but which will not be paid until January 10,2012?
A)No expense will be recognized until the bill is paid in January
B)We would cause an increase in profit by recording the expense in December
C)Recording the expense in December when it is incurred will increase expenses
D)Profit will be decreased when we pay the bill in January

Question

Quizplus · Accepted Answer

The generally accepted accounting principle of matching requires expenses to be recognized in the same accounting period as the revenue they helped generate. Therefore, the utility bill should be recognized as an expense in December, when it was incurred, regardless of when it will be paid. This means that the income statement for December will show an increase in expenses and a decrease in profits.

What Would Be the Effect on December's Income Statement of a Utility