The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:
A) The time period assumption.
B) Accrual basis accounting.
C) Revenue basis accounting.
D) The expense recognition (matching) principle.
E) Cash basis accounting.

Question

Quizplus · Accepted Answer

The approach mentioned in the question is based on recognizing revenues when they are earned and matching expenses to those revenues. This is the fundamental principle of accrual basis accounting. The approach differs from cash basis accounting, which recognizes revenues and expenses only when cash is received or paid. Additionally, the time period assumption and expense recognition principle are related concepts that support the accrual basis of accounting but are not the best choice for the given approach. Revenue basis accounting is not a commonly used term in accounting practice.

The Approach to Preparing Financial Statements Based on Recognizing Revenues