Question

1. Accrual basis of accounting primarily refers to the ____________________ principle.

a) Going concern

b) Matching

c) Cost

d) Conservatism

2. Which one of the following transaction requires no change in total assets?

a) Purchase of an equipment with cash borrowed from a bank

b) Paying cash to reduce an outstanding accounts payable

c) Investing cash to start up the business

d) Collecting a monthly installment due from a credit sale from customers

Answer 1

1. Option b - Matching

  The accrual basis of accounting primarily refers to the Matching Principle. It is the core of the accrual basis of accounting.

As per this principle, an entity has to record the expenses in its books of accounts to be reflected in the accounting period in which the revenue relating to those expenses is earned. For example, an entity will record the salary expenses for a period at the end of the period debiting the costs and creating a liability when the salaries are due but not paid. It is to match the expenses with the year they are accrued.

2. Option d

When a monthly installment due from a credit sale is collected, the Cash account is debited, and accounts receivable are credited. One asset is increased, and another decreases, leaving no change in total assets.