Question

Do the following independent situations relate to an accrual or a cash basis of accounting?

1) Accrual basis
2) Cash basis

Answer 1

Accrual basis of accounting recognizes revenue and expenses when they are earned or incurred, regardless of when the cash is received or paid. Cash basis of accounting recognizes revenue and expenses only when the cash is received or paid.

Step-by-step explanation:

1) Accrual basis

Accrual basis of accounting recognizes revenue and expenses when they are earned or incurred, regardless of when the cash is received or paid. This means that revenue is recorded when it is earned, even if the customer hasn't paid yet, and expenses are recorded when they are incurred, even if they haven't been paid yet. An example of this would be recording sales revenue when a product is delivered to a customer, even if the payment hasn't been made yet.

2) Cash basis

Cash basis of accounting recognizes revenue and expenses only when the cash is received or paid. This means that revenue is recorded when the cash is received, and expenses are recorded when the cash is paid. An example of this would be recording sales revenue only when the payment is actually received from the customer.