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16 October, 06:15

Which of the following statements are correct?

For accrual-basis accounting:

(1) record revenues when earned.

(2) record expenses when cash is paid.

For cash-basis accounting:

(3) record revenue when cash is received.

(4) record expenses when benefit is received.

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Answers (1)
  1. 16 October, 07:30
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    For accrual basis:

    (1) record revenues when earned

    For cash basis:

    (3) record revenue when cash is received

    Explanation:

    As per accounting systems:

    Accrual basis follows the periodic system in which revenues and expenses are recorded as and when they are incurred, as for revenue when it is earned, and for the period to which it relates is recorded at that time,

    As in this it does not matter that cash is received in advance or after some period, the transfer of risk and reward matters.

    In the case of cash basis all expenses and revenues are recorded as and when there is any cash inflow or outflow related to the same.
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