Question

Under which method are revenues and expenses recognized in the same accounting period that cash receipts and payments occur?

Under the cash basis of accounting

Under the accrual basis of accounting

Under the adjusting method of accounting

Under both the cash and accrual basis of accounting

Answer 1

Solution:-

Under which method are revenues and expenses recognized in the same accounting period that cash receipts and payments occur:-

Under the cash basis of accounting

Explanation:-

Cash method is an accounting system that identifies income (or revenue) only when payment is accepted and expenses only when payment is done. The cash method is straight forward in sense that the business’s books are maintained on the basis of the real flow of cash in and out of the business. In this case, income is logged as soon as it is received, and expenses are reported when they are truly paid.

If in certain situation, a client pays you in advance, cash accounting method permits you to account for those funds on your income statement when they are accepted instead of waiting till you truly earn them. Cash method also offers a lot of inventive freedom to handle what you own in the bank to suit your own style of accounting and context at any time. This makes the accounting process easier for tracking internally.