Under Modified Accrual Accounting, When Should an Expenditure Be Recorded

question 31

Multiple Choice

Under modified accrual accounting, when should an expenditure be recorded to recognize interest on long-term debt?

• A) at the end of each accounting period.
• B) when payment is due within one fiscal year.
• C) when payment is due.
• D) when cash is available to pay the interest.
• E) when the interest is incurred.

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Definitions:

Compound Interest

Interest calculated on the initial principal of a deposit or loan, as well as on the accumulated interest from previous periods.

Interest on Interest

The interest earned on the reinvestment of previous interest payments, commonly associated with compounding interest.

Reinvestment

The process of using dividends, interest, or any form of return earnings to purchase additional shares or units instead of receiving the earnings in cash.

Compound Interest

This refers to the interest that is calculated on both the original principal amount and on the interest that has previously been added to that principal in past periods.