Which of the following statements are true under the accrual basis of accounting?
Which of the following statements are true under the accrual basis of accounting?
Expenditures for expenses that benefit future periods are initially recorded as assets
Dividends paid reduce income for the year.
Revenue is recognized when performance is complete and collection is reasonably assured.
Making sales near the end of the year that are not delivered by the end of the year will increase reported income for the year.
Revenue is only recognized when cash is received since there is uncertainty until collection occurs.
Expenses are always recognized in the period they are paid.
Homework Answers
Cash basis of Accounting : In cash basis of accounting revenue or expenses is recognised when transaction is made in cash. According to cash basis of accounting, A transaction is recorded in books of account only when cash is involved.
Accrual basis of Accounting : As per Accrual basis of Accounting, revenue is recognised when it is earned and expenses are recognised when it is spent. Here flow of cash is not given importance. Performance of action is given importance in accrual basis of Accounting.
-Expenditure for expenses that benefits future periods are not recorded as asset because it is not correct to do as per accrual concept.
-Dividend paid reduce income of the year is not true statement as per accrual concept.
-Revenue is recognised when performance is completed and collection is reasonably assured is the true statement as per accrual concept because here revenue is recognised when it is earned irrespective of whether it is received or not.
-Making sales near the end of the year that are not delivered by the end of the year will increase reported income is also incorrect statement as per accrual concept.
-Revenue is recognised only when cash is received because there is uncertainty is also incorrect as per accrual concept. Revenue is recognised when it is earned irrespective of involvement of cash.
- Expenses are always recognised in the period they are paid is also incorrect because as per accrual concept expenses are recognised when the expense is incurred.
Hence, the correct answer is As per accrual concept revenue is recognised when the performance is completed and collection is reasonably assured.
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