Which of the following is true of accrual basis accounting and cash basis accounting?
a. Accrual accounting records revenue only when it is earned.
b. Accrual accounting is not all owed under GAAP.
c. Cash basis accounting records all transaction s.
d. All of the above are true.
Cash basis accounting:
According to cash-basis accounting, revenues and expenses are recorded when there is an exchange of cash.
Accrual basis accounting:
According to this basis of accounting, revenue should be recognized at the time when it is earned, it doesn’t matter that cash is received or not and expense should be recognized when it is incurred, it doesn’t matter that cash is paid or not.
To identify: The given statement which is true of accrual basis accounting and cash basis accounting.
Answer to Problem 1QC
“Option a” of accrual accounting records revenue only when it is earned is true of accrual basis accounting.
Explanation of Solution
Justification for incorrect answers:
Option b – is incorrect, because only accrual basis accounting is allowed by GAAP (Generally Accepted Accounting Principle), but not cash basis accounting.
Option c – is incorrect, because all transactions are not recorded under cash basis accounting, only transactions related to cash receipts and payments are recorded under cash basis accounting.
Option d – is incorrect, because all of the given options are not true.
Justification for correct answer:
Option a – is correct, as revenues would be recorded only when it is earned as per accrual accounting principle.
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Chapter 3 Solutions
HORNGREN'S FINANCIAL & MANGERIAL ACCOUNT
- Which of the following is not a criterion to recognize revenue under GAAP? GAAP requires that the accrual basis accounting principle be used in the revenue recognition process. The earnings process must be completed. A product or service must be provided. Cash must be collected O O O Oarrow_forwardWhich of the following states that a transaction is not recorded in the books of accounts unless it is measurable in terms of money? a. Matching principle. b. Revenue recognition principle. c. Time period assumption. d. Monetary unit assumption.arrow_forwardWhat is accrual vs basis accounting. Explain with examples?arrow_forward
- Which of the following items is not a specific account in acompany’s accounting records?a. Accounts Receivableb. Net Incomec. Sales Revenued. Unearned Revenuearrow_forwardDue to which concept, accounting does not record non-financial transactions? a. Going concern concept b. Accrual concept O C. Money measurement concept o d. Cost conceptarrow_forwardWhat is an account receivable? O a. Sales O b. Asset Oc. Income O d. Creditorsarrow_forward
- Which of the following items will not be shown in the balance sheet of ahotel? A. customer loyalty value B. accounts payable C. Intangible assets D. accrued taxesarrow_forwardWhen opposed to cash-basis accounting, does accrual-basis accounting offer more meaningful information? If not, why not? Give an example to support your argument.arrow_forwardThe practice of recording advance payments from customers as a liability is an example of applying the O Going concern assumption. O Monetary unit assumption. O Historical cost principle. Revenue recognition principle.arrow_forward
- Under accrual accounting, revenue should be recognized and recorded on the income statement: Select one: O When cash is received O When earnedarrow_forwardAccording to accruals rules, when a service is performed, the revenue should be recognized (recorded, accrued), interest income and rental income are an example of accrued revenue. Expenses recognition is also not directly related to cash payment. Expense should be recorded, when it occurs, not is paid. a) Please give a different example of accruals, and write a numeric example for it with accounting entries. b) Please classify differences between accrued expenses, payables, and provisions. Give an example for each one.arrow_forwardWhich one of the following best describes the allowance for doubtful accounts? a.Statement of earnings account b.Liability account c.Contra account d.Cash flow accountarrow_forward
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College