Which of the following statements concerning accrual accounting is correct?
A) Expenses are recognised in the period in which the consumption of costs can be measured in a faithful, verifiable manner.
B) Profit is the excess of cash inflows from income over cash outflows for expenses.
C) Income from sales is recognised in the period when the cheque is cashed.
D) For most businesses the cash approach gives a better measure of economic performance than does the accrual approach.

Question

Quizplus · Accepted Answer

Accrual accounting recognises expenses in the period in which the consumption of costs can be measured in a faithful, verifiable manner, not necessarily when the cash is paid. The statement in option B is a feature of cash accounting, not accrual accounting. Option C is incorrect as income should be recognised when earned, not when the cheque is cashed. Option D is incorrect as the accrual approach provides a better measure of economic performance as it matches revenue and expenses to the periods to which they relate.

Which of the Following Statements Concerning Accrual Accounting Is Correct