Question

the system of preparing financial statements based on recording revenues when the cash is received and reporting expenses when the cash is paid is called:

Answer 1

In order to create financial statements using cash basis accounting, revenues must be recorded as soon as they are received and expenses must be paid.

What does cash basis accounting entail?

The "cash basis" method of accounting, which is widely used, classifies revenues and expenses according to when money is received or spent. Contrarily, accrual accounting records expenses as they are incurred, regardless of when cash is received or paid, and recognizes income at the time the liability is incurred.

When should one utilize cash basis accounting?

This system states that money is only reported on the income statement after cash is received. Expensive transactions are only recorded when cash is exchanged. The cash method is frequently used for personal finances by small businesses and individuals.

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