[FutureCPA123]

Is this question wrong? I usually do not have any issues with accrual/cash basis questions… I thought you added increases in assets and decreases in liabilities when converting cash to accrual. This question says you subtract them?? I get that you’d subtract them if it said accrual to cash.

Dannon Co. reported its expenses of $35,200 on the cash basis. Corporate records revealed the following information:

Beginning prepaid expense $1,300
Beginning accrued expense 1,650
Ending prepaid expense 1,800
Ending accrued expense 1,200

What amount of expense should Dannon report on its books under the accrual basis?

A. $34,250
B. $35,150
C. $35,300
D. $36,150

It says the answer is A.

The best way to approach this question is by thinking through the effect on cash basis expenses for the change in the prepaid and accrued expenses. The expenses reported on a cash basis are 35,200. Prepaid expenses increased by 500; which means that more cash was paid than expense incurred. Therefore, the 500 should be deducted from the cash basis expense to derive accrual basis expense. Accrued expenses decreased by 450; which means more cash was paid than expenses incurred. Therefore, the 450 should be deducted from the cash basis expense to derive the accrual basis expense. The correct answer is 35,200 – 500 – 450 = 34,250.

I’m calculating it as 35,200 + 500 + 450 = $36,150.