Question

Which of the following is an advantage of accrual basis accounting? A. It allows you to track money that is owed but not yet paid. B. It means a business does not have to use receipts. C. It makes it easy to see a company’s cash flow D. It means a business doesn’t have to track every transaction.

Answer 1

Answer:

A) It allows you to track money that is owed but not yet paid.

Explanation:

Accrual basis accounting records transactions (revenue and expenses) when they occur, and not necessarily when the company receives or pays money. While the cash basis accounting records transactions only when the company pays or receives money.  

The advantage of using an accrual basis accounting, is that a company can match their revenue or expenses with the activities that they carry out. For example, a store sells 10 TVs on credit. If the store uses the accrual basis accounting method, the transaction will be recorded once the TVs have been delivered to the customer (an accounts receivable is created). If the company uses the cash basis accounting method, it would record the sale only when the customer pays the invoice.