Which of the following is true about accrual basis accounting?
a) Revenues are recorded when cash is received
b) Expenses are recorded when paid
c) Revenues are recorded when earned, regardless of cash receipt
d) Revenues are recorded when the customer is billed
Under cash basis accounting, expenses are recorded when:
a) They are incurred
b) Cash is paid
c) Invoices are received
d) The payment is authorized
Which of the following is NOT true under cash basis accounting?
a) Revenue is recognized when cash is received
b) Expenses are recognized when they are paid
c) It matches income with related expenses
d) It does not record accounts payable or receivable
Which accounting method provides a more accurate picture of a company’s financial position?
a) Cash basis accounting
b) Accrual basis accounting
c) Both are equally accurate
d) Neither provides an accurate picture
Under accrual accounting, revenue is recognized when:
a) Cash is received
b) Goods are sold or services are performed
c) Payment is authorized
d) Invoices are sent to the customer
Which of the following is a disadvantage of cash basis accounting?
a) It reflects the true financial position of the business
b) It is easier to manipulate revenue recognition
c) It matches income with related expenses
d) It is difficult to implement for larger businesses
Accrual basis accounting requires that companies record:
a) Only cash transactions
b) Revenues and expenses when incurred, regardless of cash flow
c) Only revenue transactions
d) Cash received or paid regardless of revenue recognition
Which of the following is NOT an example of an accrual under accrual accounting?
a) Unpaid invoices
b) Accounts payable
c) Accounts receivable
d) Cash in hand
Which of the following is a key advantage of cash basis accounting?
a) It matches revenues with related expenses
b) It is more complex and time-consuming
c) It provides a clearer view of cash flow
d) It requires extensive accounting knowledge
Which of the following transactions would be recorded under accrual accounting but not under cash basis accounting?
a) A sale made on credit
b) A payment made for rent
c) A loan repayment
d) A purchase of equipment for cash
Under accrual accounting, expenses are recognized when:
a) Cash is paid
b) The expense is incurred
c) The invoice is received
d) Payment is authorized
Which of the following is a characteristic of cash basis accounting?
a) Revenue is recognized when earned, regardless of cash receipt
b) Revenue is recorded when the cash is received
c) Expenses are recorded when incurred
d) Both income and expenses are recorded when they are earned
The primary difference between accrual and cash basis accounting is:
a) The timing of revenue and expense recognition
b) The type of transactions recorded
c) The treatment of cash flows
d) The number of financial statements generated
Accrual accounting is required by:
a) The IRS for tax purposes
b) Most small businesses
c) Generally Accepted Accounting Principles (GAAP)
d) Non-profit organizations only
Which of the following is recorded only under accrual accounting and not under cash basis accounting?
a) Cash paid for utilities
b) Prepaid expenses
c) Revenue from a cash sale
d) Rent paid in advance
Under cash basis accounting, which of the following is true?
a) Revenue is recognized when it is earned, regardless of cash receipt
b) Expenses are recognized when the related goods are received
c) Revenue is recognized when cash is received
d) Expenses are recognized when they are incurred
Which of the following businesses is most likely to use cash basis accounting?
a) Large public companies
b) Non-profit organizations
c) Small businesses or sole proprietors
d) International corporations
In accrual accounting, prepaid expenses are:
a) Recognized as an expense when paid
b) Recorded as a liability when paid
c) Recorded as an asset until consumed
d) Recorded as income when paid
Which of the following financial reports is affected by the accounting method chosen?
a) Income statement
b) Balance sheet
c) Cash flow statement
d) All of the above
Which of the following best describes a business using cash basis accounting?
a) The company reports revenues and expenses when they are earned or incurred
b) The company only records transactions when cash is exchanged
c) The company reports revenue based on when customers are billed
d) The company adjusts revenues based on future payments
Which method of accounting gives a more accurate reflection of a company’s financial performance over time?
a) Cash basis accounting
b) Accrual basis accounting
c) Both methods are equally accurate
d) Neither method reflects performance accurately
Under cash basis accounting, prepaid rent would be recorded as:
a) An expense when paid
b) A liability until paid
c) An asset when paid
d) A liability when paid
Under accrual accounting, revenue is recognized when:
a) Cash is received from the customer
b) The customer places an order
c) The goods or services are delivered to the customer
d) The invoice is sent to the customer
Which of the following is a limitation of cash basis accounting?
a) It provides a better measure of profitability than accrual accounting
b) It ignores future obligations or receivables
c) It recognizes revenues when they are earned, regardless of cash receipt
d) It is more complex than accrual accounting
Which of the following statements best describes accrual accounting?
a) It records transactions only when cash is received or paid
b) It records transactions when they occur, regardless of cash flow
c) It records revenue when cash is collected
d) It ignores expenses incurred that are not yet paid
