Question

The accrual basis, not the cash basis, recognizes all aspects of the credit phenomenon.

Select one:
True
False

Answer 1

Ans: True, the accrual basis, not the cash basis, recognizes all aspects of the credit phenomenon.

Reason: In case of accrual basis of accounting, service rendered or goods sold etc. are recognized in the book as soon as the goods are transferred or service proving is completed etc. It includes all aspects of credit based transactions which is actually a demerit of cash basis accounting since it recognizes the transactions only when payment is made or amount is recieved....

Eg: If a company is proving a service to its client as on 30Oct for $27000. The client makes the payment on 31Dec. In case of accrual basis of accounting, the transaction is recorded on 30Oct itself but in case of cash basis, it is recorded on 31Dec only. That is the service is made on credit as on 30 Oct, therefore, in accrual basis the revenue is recognized when the service has been provided(30Oct). Thus, accrual basis includes all aspects of credit phenomenon