Under the Accrual Method, Recurring Liabilities May Be Deducted Currently

question 504

Multiple Choice

Under the accrual method, recurring liabilities may be deducted currently and paid in the next period if all of the following are present except for

• A) the all- events test is met.
• B) economic performance occurs within the shorter of 8 1/2 months after the close of the year or a reasonable period after the close of the year.
• C) the expense is recurring.
• D) the expense is material.

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Definitions:

Unearned Fees

Revenue received by a company for services yet to be performed, recognized as a liability until the services are provided.

Fees Earned

Income received for services provided by a company or individual.

Adjusting Entry

A journal entry made in accounting to adjust income or expense accounts so they align with the accrual method of accounting.

Calendar-Year

A one-year period that begins on January 1 and ends on December 31, used for financial and taxation purposes.