Question

Which of the following situations would result in an increase in income under the accrual method of accounting but would NOT result in an increase in income under the cash-basis method of accounting?

Select one:
a. Purchase of supplies
b. Performance of services on account
c. Use of supplies purchased earlier
d. Receipt of cash for services performed earlier on account

Answer 1

The situation that would result in an increase in income under the accrual method but not under the cash-basis method is receipt of cash for services performed earlier on account.

Step-by-step explanation:

Under the accrual method of accounting, income is recognized when it is earned, regardless of whether or not cash has been received. On the other hand, under the cash-basis method of accounting, income is recognized only when cash is received. With this in mind, the situation that would result in an increase in income under the accrual method but not under the cash-basis method is d. Receipt of cash for services performed earlier on account. This is because the cash received would be recognized as income under the accrual method since the services were already performed, but it would not increase income under the cash-basis method until the cash is actually received.