EXPENSES AND THE MATCHING PRINCIPLE The following information describes transactions for Morgenstern Advertising Company during July:

a. On July 5, Morgenstern purchased and received $21,500 of supplies on credit from Drexel Supply Inc. Morgenstern paid $18,500 cash to Drexel and used $16,200 of the supplies during July.

b. Morgenstern paid $9,600 to salespeople for salaries earned during July. An additional $1,610 was owed to salespeople at July 31 for salary earned during the month.

c. Paid $1,900 to the local utility company for electric service. Electric service in July was $1,650 of the $1,900 total bill.

Required:

Calculate the amount of expense recognized in July under

(a) the cash-basis of accounting and

(b) the accrual-basis of accounting.

Cornerstone Exercise