Which of the following expressions correctly describes when revenues and expenses are recognized under accrual basis accounting?
A) Revenues when cash is received; expenses when cash is paid
B) Revenues when cash is received; expenses when the expense is incurred
C) Revenues when the revenue is earned; expenses when the expense is incurred
D) Revenues when the revenue is earned; expenses when cash is paid

Question

Quizplus · Accepted Answer

Accrual basis accounting recognizes revenues when they are earned, regardless of when the cash is received, and expenses when they are incurred, regardless of when the cash is paid. This method provides a more accurate picture of a company's current financial situation and performance compared to cash basis accounting, which only recognizes transactions when cash is exchanged.

Which of the Following Expressions Correctly Describes When Revenues and Expenses