Which of the following is true of accrual based accounting?

Question

A: it records revenue only when cash is deposited
B: it records expenses only when cash has been paid for them
C: it is required by gaap..
D: it always results in greater net income than cash basis accounting

Answer 1

The correct statement regarding accrual-based accounting is:

C: it is required by GAAP.

Accrual accounting recognizes revenue when it is earned and expenses when they are incurred, regardless of when the cash is actually exchanged. This is in contrast to cash basis accounting, which records revenue and expenses only when cash is received or paid.

Here's a brief explanation of the other options:

• A: False, as accrual accounting records revenue when earned, not when cash is deposited.
• B: False, accrual accounting records expenses when they are incurred, not when cash is paid.
• D: False, accrual accounting does not always result in greater net income than cash basis accounting; it depends on the specific circumstances and timing of transactions.