Question

How are revenues and expenses recognized under the accrual basis of accounting?

a. Revenues are recognized when cash is received and expenses are recognized when cash is paid.
b. Revenues and expenses are recognized equally over a twelve month period.
c. Revenues and expenses are recognized based on the choices of management.
d. Revenues are recognized in the accounting period when the sale is made and expenses are recognized in the period in which they relate to the sale of the product.

Answer 1

Under the accrual basis of accounting, revenues are recognized in the accounting period when the sale is made, and expenses are recognized in the period in which they relate to the sale of the product.

Step-by-step explanation:

Under the accrual basis of accounting, revenues are recognized in the accounting period when the sale is made, regardless of when cash is received.

Expenses are recognized in the period in which they relate to the sale of the product, regardless of when cash is paid. This method ensures that revenues and expenses are matched and reported in the correct accounting period, giving a more accurate picture of a company's financial performance.