Total net income over the life of an enterprise is
A) higher under the cash basis than under the accrual basis.
B) lower under the cash basis than under the accrual basis.
C) the same under the cash basis as under the accrual basis.
D) not susceptible to measurement.

Question

Quizplus · Accepted Answer

The total net income over the life of an enterprise should be the same under the cash basis and the accrual basis, as long as all transactions are recorded and accounted for properly. The difference between the two methods is mainly in the timing of recognizing revenue and expenses. Under cash basis, revenue is recognized when cash is received and expenses are recognized when cash is paid out. Under accrual basis, revenue is recognized when it is earned and expenses are recognized when they are incurred. However, over the entire life of the enterprise, all revenue and expenses should be recognized regardless of the method used.

Total Net Income Over the Life of an Enterprise Is