Which statement best describes accrual accounting?

Which statement best describes accrual accounting?

• A. Revenue recognized when cash is received.
• B. Revenue recognized when performance is reasonably certain and expenses when incurred.
• C. Revenue recognized at the end of the period regardless.
• D. Revenue recognized only when a bill is paid.

Answer: (B)

Accrual accounting records the economic events when they occur, not when cash changes hands. Revenue is recognized when the performance obligation is satisfied and collection is reasonably assured, and expenses are recognized when the related goods or services are consumed or the obligation is incurred. This alignment with the timing of earning and incurring costs provides a more accurate picture of profitability for the period. The statement matches this approach by describing revenue recognition when performance is reasonably certain and expenses when incurred. The other descriptions reflect cash-basis timing (revenue only when cash is received or a bill is paid) or recognize revenue at a fixed end-of-period point, which do not reflect accrual principles.

Accrual accounting records the economic events when they occur, not when cash changes hands. Revenue is recognized when the performance obligation is satisfied and collection is reasonably assured, and expenses are recognized when the related goods or services are consumed or the obligation is incurred. This alignment with the timing of earning and incurring costs provides a more accurate picture of profitability for the period. The statement matches this approach by describing revenue recognition when performance is reasonably certain and expenses when incurred. The other descriptions reflect cash-basis timing (revenue only when cash is received or a bill is paid) or recognize revenue at a fixed end-of-period point, which do not reflect accrual principles.