Question

Gerald’s manufacturing firm sold goods worth $6,000 to some customers on credit in the month of January. His customers plan to pay him the entire amount at once in March. Gerald plans to record and recognize this income in the business’s accounts in March. Which accounting method does Gerald’s business follow?
His business follows the _______method of accounting.

Answer 1

Answer:

The cash accounting systems

Explanation:

The cash accounting systems recognize incomes and expenses when paid is received, or when payments are made. Revenue is recorded when customers make payments against an invoice, and expenses recorded when the business pays its payable. The cash accounting system is also called cash basis accounting.

The cash basis accounting system is mostly used by small business organizations.  Gerald's manufacturing firm uses the cash accounting system because transactions are recorded when money goes in or out of business. The cash basis is not recommended for large business organizations.