Printing Pros hired a new employee for a big April job; the first paycheck arrived at the beginning of May. When should the expense be recognized?

Printing Pros hired a new employee for a big April job; the first paycheck arrived at the beginning of May. When should the expense be recognized?

• A. May
• B. March
• C. April
• D. June

Answer: (C)

Under accrual accounting, expenses are recognized in the period when the service is performed, not when cash is paid. The employee worked on the April job, so the wage expense is incurred in April. Even though the paycheck isn’t issued until May, the expense belongs to April, and a wages payable liability would appear at the end of April until the payment is made in May. If you were using cash basis accounting, you’d record the expense in May when cash leaves, but the standard approach here is April.

Under accrual accounting, expenses are recognized in the period when the service is performed, not when cash is paid. The employee worked on the April job, so the wage expense is incurred in April. Even though the paycheck isn’t issued until May, the expense belongs to April, and a wages payable liability would appear at the end of April until the payment is made in May. If you were using cash basis accounting, you’d record the expense in May when cash leaves, but the standard approach here is April.