The approach to preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called
A) Accrual basis accounting
B) The operating cycle of a business
C) Cash basis accounting
D) The revenue recognition principle
E) The matching principle

Question

Quizplus · Accepted Answer

The approach described is called cash basis accounting, where revenues and expenses are recorded based on actual cash transactions. This is in contrast to accrual basis accounting, where revenues are recognized when earned and expenses are recognized when incurred, regardless of when the cash is received or paid. The operating cycle of a business refers to the time it takes to convert inventory to cash, and is not a method of preparing financial statements. The revenue recognition principle and matching principle are both principles used in accrual accounting, not cash basis accounting.

The Approach to Preparing Financial Statements Based on Recognizing Revenues