Question

Which of the following types of transactions does not result in the immediate recognition of revenue or expense for a small business using the accrual method?

1) Cash transactions
2) Credit transactions
3) Accrual transactions
4) Deferred transactions

Answer 1

Deferred transactions do not lead to the immediate recognition of revenue or expense in the accrual method of accounting because they involve prepayments for goods or services that will be provided in the future.

Step-by-step explanation:

The type of transaction that does not result in the immediate recognition of revenue or expense for a small business using the accrual method is deferred transactions. In the accrual method of accounting, revenues and expenses are recorded when they are earned or incurred, regardless of when the cash is actually received or paid.

Here's a brief explanation of each option:

• Cash transactions: involve immediate cash exchange and are recognized at the time of the transaction.
• Credit transactions: are recorded when the transaction occurs, not when the cash is exchanged.
• Accrual transactions: involve recording revenues and expenses when they are earned or incurred without a direct link to cash flow.
• Deferred transactions: involve money received or paid in advance for products or services that will be provided in the future. Revenue or expenses are recognized when the product or service is actually delivered or used, which may be in a different accounting period.