Question

Under the accrual basis of accounting, which of the following statements is true? I. Reported net income provides a measure of operating performance. II. Revenue is recognized when cash is received, and expenses are recognized when payment is made. III. Cash inflows are recognized when they are received, and cash outflows are recognized when they are made.

Answer 1

Answer:

III. Cash inflows are recognized when they are received, and cash outflows are recognized when they are made

Explanation:

Accrual basis states that transactions should be recorded when they are entered into , irrespective of whether cash settlement (inflow/ outflow) take place or not .

So: Expenses are recognised when they are incurred, revenue is recognised when it is realised (earned). And cash inflow is recorded when cash is recieved, cash outflow is recorded when cash is paid.

Ex : 'Rent due but not paid' will still be recorded as liability expense 'Rent outstanding'. And cash transaction will be recorded when the cash settlement (payment) of the liability is done .