Which statement about accrual accounting is true?

Which statement about accrual accounting is true?

• A. Revenue recognized when cash is received
• B. Expenses recognized when cash is paid
• C. Revenue and expenses recognized when earned or incurred, regardless of cash flow
• D. It is the same as cash basis

Answer: (C)

Accrual accounting records revenue when it is earned and expenses when they are incurred, regardless of when cash changes hands. Revenue is recognized once the seller has performed the service or delivered the product and collection is reasonably assured. Expenses are recognized when the related benefit is consumed or the obligation arises, matching them to the revenues they helped generate. This timing approach gives a more accurate picture of financial performance for the period and is the standard under GAAP. If cash is received later, revenue is still recorded in the period earned; if cash is paid later, expenses are recorded when incurred. The statement that revenue and expenses are recognized when earned or incurred, regardless of cash flow, best reflects accrual accounting, which is not the same as cash basis.

Accrual accounting records revenue when it is earned and expenses when they are incurred, regardless of when cash changes hands. Revenue is recognized once the seller has performed the service or delivered the product and collection is reasonably assured. Expenses are recognized when the related benefit is consumed or the obligation arises, matching them to the revenues they helped generate. This timing approach gives a more accurate picture of financial performance for the period and is the standard under GAAP. If cash is received later, revenue is still recorded in the period earned; if cash is paid later, expenses are recorded when incurred. The statement that revenue and expenses are recognized when earned or incurred, regardless of cash flow, best reflects accrual accounting, which is not the same as cash basis.