Question

What accounting method provides a snapshot of finances with what's in the pipeline - both what is owed but not yet paid out, what is due to come in but hasn't yet arrived - versus the cash method that doesn't account for any transaction that isn't completed?

A) Accrual
B) Barter accounting
C) Shadow accounting
D) Placeholder accounting

Answer 1

The accrual accounting method records all financial activity when earned or incurred regardless of cash flow, giving an accurate financial snapshot including asset-liability time mismatch, and is reflected in a balance sheet listing assets and liabilities. Option A.

Step-by-step explanation:

The accounting method that provides a snapshot of finances, including transactions that are in progress such as amounts owed but not yet paid and revenues that are earned but not yet received, is called the accrual accounting method.

Under this method, revenues and expenses are recorded when they are earned or incurred, regardless of when the cash is actually received or paid. This is different from the cash accounting method, which only records transactions when the cash is exchanged.

This approach of accounting gives a more accurate picture of a company's financial condition because it includes asset-liability time mismatch, which reflects the reality that customers can withdraw liabilities like bank deposits in the short term while customers repay its assets, such as loans, in the long term.

The balance sheet is a key financial statement in accrual accounting that lists a business's assets and liabilities, providing a snapshot of its financial health at a specific point in time.

So Option A is correct.