Question

Which of the following is true of accrual basis accounting and cash basis​ accounting? A. Cash basis accounting records all transactions. B. Accrual accounting is not allowed under GAAP. C. Accrual accounting records revenue only when it is earned. D. All of the above are true.

Answer 1

Answer: Option C is true about Accruals basis

Explanation:

Cash basis states that transactions are only recognized when cash is received and paid. Some of the short comings of the cash basis was it didn’t regard the period in which transactions occured, etc

Accrual basis states that revenue is recognized when earned and expenses when incurred and not when cash is received or paid.

Option 1 is wrong because cash basis only records cash transactions.

Option 2 is wrong because Accruals basis is recognized by GAAP

Answer 2

Answer:

Option C; ACCRUAL ACCOUNTING RECORDS REVENUE ONLY WHEN IT IS EARNED.

Explanation:

The main difference between accrual and cash basis accounting lies in the timing of when revenue and expenses are recognized.

Accrual accounting means revenue and expenses are recognized and recorded when they occur, while cash basis accounting means revenue and expenses aren't documented until cash exchanges hands.

Accrual accounting method records revenue when a product or service is delivered to a customer with the expectation that money will be paid in the future.

In accrual accounting method, revenue is accounted for when it is earned. Therefore, the option that best suits the question is option C; ACCRUAL ACCOUNTING RECORDS REVENUE ONLY WHEN IT IS EARNED.