Question

What is the best example of an accrued expense?

a. Red Company recognizes an increase in cash and an increase in unearned subscription revenue.

b. Pink Company recognizes an increase in utilities expense and an increase in accounts payable.

c. Blue Company recognizes an increase in cash and an increase in sales revenue.

d. Green Company recognizes an increase in accounts receivable and an increase in sales revenue.

Answer 1

An accrued expense is an expense like utilities or rent which is incurred throughout the period but not paid during the period. For example, rent expense is incurred on a monthly basis but the payment for the same made in the following month. In the case of accrued expenses, the expense is recorded in the month in which the expense has been incurred and a corresponding amount is recorded as an accounts payable since the amount is yet to be paid.

Hence, we can say that an accrued expense will result in an increase in utilities expense and an increase in the accounts payable.

Hence, option b is the correct answer - Pink Company recognizes an increase in utilities expense and an increase in accounts payable.