Asked by Elizabeth Morrical on May 01, 2024
Verified
The cash basis of accounting records revenues and expenses when the cash is exchanged, while the accrual basis of accounting
A) records revenues when they are earned and expenses when they are paid
B) records revenues and expenses when they are incurred
C) records revenues when cash is received and expenses when they are incurred
D) records revenues and expenses when the company needs to apply for a loan
Cash Basis
An accounting method where revenues and expenses are recognized only when cash is received or paid out, respectively.
Accrual Basis
A financial recording technique that documents income and costs at the time they are generated or incurred, without consideration of when the actual cash transaction occurs.
Revenues
The total amount of income generated by the sale of goods or services related to a company's primary operations.
- Understand the distinctions between cash basis accounting and accrual basis accounting.
Verified Answer
RH
Rachel HamiltonMay 06, 2024
Final Answer :
B
Explanation :
The accrual basis of accounting records revenues and expenses when they are incurred, regardless of when the cash is exchanged. This provides a more accurate representation of a company's financial position, as it reflects all transactions, including those that have not yet resulted in cash inflows or outflows. In contrast, the cash basis of accounting only records transactions when the cash is actually received or paid, which can result in inaccurate financial statements.
Learning Objectives
- Understand the distinctions between cash basis accounting and accrual basis accounting.