Question

Which of the following must be recognized periodically under accrual basis accounting even in the absence of a transaction?

1) 1/1
2) cash inflows
3) cash outflows
4) sales
5) expenses

Answer 1

In accrual basis accounting, expenses must be recognized when they are incurred, irrespective of actual cash transactions. This accounting method accounts for income and expenses based on earning and incurring respectively, not on the exchange of cash.

Step-by-step explanation:

Under accrual basis accounting, expenses must be recognized periodically even in the absence of a transaction. This method of accounting recognizes income when it is earned and expenses when they are incurred, regardless of when the cash is actually received or paid. For example, if a business incurs an expense for utilities in January, it should recognize that expense in January even if the bill is not paid until February. This is different from cash basis accounting, where transactions are only recognized when the cash is exchanged.