SOLVED: You signed contracts with 10 speakers for the conference. The total cost amounted to $20,000 and is payable within 30 days of the end of the conference.

You signed contracts with 10 speakers for the conference. The total cost amounted to $20,000 and is payable within 30 days of the end of the conference. 

a. When should the expense for the speakers’ services be recorded on your organization’s income statement? 

b. What is the effect on the financial statements (balance sheet and income statement) in November? In February?

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The Accruals Concept of accounting demands that income and expenditure be considered in the accounting periods to which they directly relate rather than on a cash basis.

Profits must be reported in the accounting period in which it is received, and expenses must be recorded when and when they are incurred, according to the accruals basis of accounting.

The accrual principle ensures that the investments in a given timeframe are balanced with the related expenses.

As a result, the cost of ten speakers is registered on the signing date.

On the same day, a liability is formed, and it is recorded in the balance sheet under current liabilities.

The sum of expenditures will be incurred as we report the expenses of speakers, which will have an effect on the income statement. Profits will be diminished as a result.

The effect on the balance sheet is that the cost of ten speakers is shown as a liability before it is charged.