Question

Which one of the following bases of income and expense recognition is acceptable for Financial reporting under current GAAP?

A. Cash basis

B. Modified cash basis

C. Accrual basis

D. All of these

Under the cash basis, expenses are recognized when

A. They are paid by the entity

B. The costs expire or as assets are used

C. The revenue are recognized that the expenses helped to produce

D. Cash is received from revenues that the expenses helped to produce

Which of the following transactions will not be recognized in cash basis accounting?

A. Unsold inventory at the end of the period

B. Collection of account sales

C. Payment of utilities

D. Purchase of equity shares in Dogs Corporation

Answer 1

Answer.1

Option C is correct.

ie. Accural basis.

Modified cash basis/cash basis accounting is not acceptable under the generally Acceptable Accounting Principles (GAAP) or the International Financial Reporting Standards (IFRS).Only Accrual basis is acceptable.

Accrual accounting provides for a better sense of a company's overall financial health than the cash basis accounting method. That is primarily why it has been adopted as a best practice.

Answer.2

Option A is correct.

i.e Revenue/Expenses are reported on the income statement only when cash is received/Paid.The cash method is mostly used by small businesses and for personal finances.

All other options are of accrual basis in which no cash is received or paid.

Answer.3

Option A is correct.

Because unsold inventory at year end doesn't constitute any cash flow.And all other options have either cash inflow or cash outflow which following Cash basis Accounting hence are incorrect.