Question

Porite Company recognizes revenue in the period in which it records an asset for the related account receivable, rather than in the period in which the account receivable is collected in cash. Porite's practice is an example of:

Answer 1

Answer:

Accrual basis of accounting

Explanation:

Accruals basis accounting (accruals accounting, the matching concept) depicts the effects of transactions and other events and circumstances on a reporting entity’s economic resources and claims in the periods in which those effects occur, even if the resulting cash receipts or payments occur in a different period.

Revenue from sales and other income should be reported in the period when the income arises (which might not be the same as the period when the cash is received from the customer / client).

Based on the above discussion it can be concluded that the Portie's practice is an example of accrual basis of accounting.