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On December 1, a company pays $3,600 for a 36-month insurance policy. After one month, accrual accounting requires $ _________(100/3,600) of insurance expense be reported on the income statement ending December 31. However, if cash basis accounting is used, $ _______(100/3,600) of insurance expense would be reported at the time of purchase.

Respuesta :

Accrual accounting demands $100 in insurance expenses, whereas cash basis accounting requires $3,600 in insurance expenses.

What is the insurance expense?

Using the accrual basis of accounting, the corporation will recognize expenses when they are incurred, regardless of whether they are paid or not.

As a result, the company's insurance expense in the year is limited to the months of December 1 to December 31.

[tex]\text{ Insurance expense under accrual basis} =\frac{3,600}{36}=100[/tex]

Therefore, $3,600 divided by 36 months equals $100.

When using cash basis accounting, all expenses with actual cash outflows are reported.

As a result, the entire $3,600 insurance policy cost will be charged to insurance expenses in the year.

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