ACCRUAL- AND CASH-BASIS EXPENSE RECOGNITION The following information is taken from the accrual accounting records of Kroger Sales Company:

a. During January, Kroger paid $8,500 for supplies to be used in sales to customers during the next two months (February and March). The supplies will be used evenly over the next two months.

b. Kroger pays its employees at the end of each month for salaries earned during that month. Salaries paid at the end of February and March amounted to $4,750 and

$5,100, respectively.

c. Kroger placed an advertisement in the local newspaper during March at a cost of

$700. The ad promoted the pre-Spring sale during the last week in March. Kroger did not pay for the newspaper ad until mid-April.

Required:

. Under cash-basis accounting, how much expense should Kroger report for February and March?

. Under accrual-basis accounting, how much expense should Kroger report for February and March?

. Which basis of accounting provides the most useful information for decisionmakers? Why?

Exercise