Final answer:
The statement suggesting that businesses only record accrued interest when it is due is false. Businesses are required to record interest as it accrues, in line with the accrual basis of accounting. This ensures accurate and timely reflection of financial obligations.
Step-by-step explanation:
The statement that businesses typically only record accrued interest when it is due is false. Accrued interest is the amount of interest that has been incurred, but not yet paid, during a particular accounting period. According to the accrual basis of accounting, expenses and revenues should be recorded in the period they are incurred, not necessarily when they are paid. This means that interest expense must be recorded as it accrues, not solely when it is due for payment.
For example, if a firm takes out a loan from a bank or issues bonds, there will typically be an interest expense associated with these borrowing methods. This accrued interest should be recorded periodically (e.g., monthly, quarterly) even though it may not be due for payment until the end of the loan term or on specified bond coupon dates.
This approach ensures that financial statements provide a true and fair view of the company's financial position and performance, reflecting all obligations and resources of the firm within the accounting period.