Which of the following circumstances would result in a decrease in income under the accrual basis but would not result in a decrease in income under the cash basis?
a) Purchase of inventory on account
b) Payment of two months rent in advance
c) The expiration of prepaid rent
d) The return of defective inventory purchased on account, where full credit was given
e) The payment of the current period's utility bill
explain why you chose d particular ans. Thx lots!

p8888

The most commonly used accounting method, which reports income when earned and expenses when incurred, as opposed to cash basis accounting, which reports income when received and expenses when paid. Under the accrual method, companies do have some discretion as to when income and expenses are recognized, but there are rules governing the recognition. In addition, companies are required to make prudent estimates against revenues that are recorded but may not be received, called a bad debt expense.

p8888

The bookkeeping practice of recording sales and expenses only when cash is actually received or paid out, as opposed to accrual basis. Generally cash basis bookkeeping is simpler than accrual basis bookkeeping, but makes securing financing more difficult. also called cash method of accounting.