Question

Accrual basis accounting recognizes ___ (equity/revenues/expenses) when the service or product is delivered and records ___ (revenues/expenses/liabilities) when ___ (incurred/paid) in order to adhere to the matching principle.

Answer 1

Answer: revenues ; expenses ; incurred

Explanation: Accrual basis of accounting from the english word 'accrue' means accumulation or gathering over a certain period of time. Hence, when investments, purchases are gathered or compiled over a certain time period.

In other to adhere to the matching principle under accrual basis of accounting :

Revenues should be recorded once the service or product is earned or delivered and not until when cash is paid. Expenses are recorded correspondingly irrespective of when the cash is paid out. Therefore, in accrual accounting, once obligation or expenses is incurred, expenses is recorded.