Question

Under the accrual basis of accounting: a. cash must be received before revenue is recognized. b. a company’s accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles. c. net income is calculated by matching cash outflows against cash inflows. d. events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.

Answer 1

Answer: Option D

Explanation: In simple words, accrual basis refers to the method of accounting in which the expenses are recorded when they are incurred and revenues are recorded when they are earned.

Under this method, accountant does not take into consideration whether the cash has been exchanged or not. This is widely followed as it represents the position of an organisation more effectively.