Which of the following statements regarding the accrual basis of accounting is true? A) It records transactions only when cash is received or paid. B) It records revenue when it is earned and expenses when they are incurred, regardless of when cash is exchanged. C) It is primarily used by small businesses and individuals for tax purposes. D) It provides a more accurate representation of a company's financial position compared to the cash basis of accounting.

Which of the following statements regarding the accrual basis of accounting is true? A) It records transactions only when cash is received or paid. B) It records revenue when it is earned and expenses when they are incurred, regardless of when cash is exchanged. C) It is primarily used by small businesses and individuals for tax purposes. D) It provides a more accurate representation of a company's financial position compared to the cash basis of accounting.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter3: Accrual Accounting

Section: Chapter Questions

Problem 1MCQ: Which of the following statements is true? Under cash-basis accounting, revenues are recorded when a...

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Under the cash basis of accounting, which of the following statements is true? a. Revenue is recorded when it is earned, regardless of when the cash is received. b. Expenses are recorded when they are paid. c. Expenses are recorded when they are incurred, regardless of when the cash is paid. d. The cash basis of accounting is allowed for all corporations.
Which of the following statements is true? Under cash-basis accounting, revenues are recorded when a company satisfies its performance obligations and expenses are recorded when incurred. Accrual-basis accounting records both cash and noncash transactions when they occur. Generally accepted accounting principles require companies to use cash-basis accounting. The key elements of accrual-basis accounting are the revenue recognition principle, the expense recognition principle, and the historical cost principle.
Which of the following is the principle that a business must report any business activities that could affect what is reported on the financial statements? A. revenue recognition principle B. expense recognition (matching) principle C. cost principle D. full disclosure principle
Which of the following statements is false? A. Noncash activities should be reported in accrual basis financial statements. B. Net cash flow from operating activities relates to normal business operations. C. Net income usually equals net cash flow from operating activities. D. The statement of cash flows is an essential part of the basic financial statements.
Why is using the direct method to prepare the operating section of the statement of cash flows more challenging for accountants than preparing the balance sheet, income statement, and retained earnings statement?
Under the accrual basis of accounting: cash must be received before revenue is recognized. events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received. net income is calculated by matching cash outflows against cash inflows. the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles.
Financial statements are prepared under the accrual basis, because The accrual basis requires the recording of transactions in terms of debit and credit The accrual basis provides more complete information about an enterprise, compared to the cash basis of accounting. The accrual basis is the only basis used for income tax purposes. The accrual basis considers the timing of the cash inflow and cash outflow in the recognition of income and expenses.
Revenues and expenses must be recorded in the accounting period in which they were earned or incurred, no matter when cash receipts or outlays occur under which of the following accounting methods? revenue basis accounting B accrual basis accounting cash basis accounting tax basis accounting cr
If a company uses accrual-basis accounting O transactions are recorded in the period they occur rather than in the period in which cash is paid or received. net income is calculated by matching cash outflows against cash inflows. O cash must be received before revenue is recognized. O the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles.
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: Multiple Choice O Economic entity. The matching principle. Accrual accounting. Cash basis accounting.
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