Under accrual accounting, when is revenue recognized? When is expense recognized? Under cash accounting, when is...
Under accrual accounting, when is revenue recognized? When is expense recognized? Under cash accounting, when is revenue recognized and when is expense recognized? FASB (Financial Accounting Standards Board) requires the use of which basis of accounting, accrual or cash?
Homework Answers
In Accrual Accounting a revenue is recognized when it is earned and not when cash is received against that revenue. For example sale opf goods on credit is the trigger point to record sales and not when cash is received from customer. Revenue is recognized when revenue is earned or when revenue is recognizable (to be collected in future in cash or kind).
In accrual accounting expense is recognized when in the period in which revenue related to that expense is recognized. Expenses are recognized when they have occurred and not when cash is paid for that expense. For example electricity bill paid in the month of December paid in January will be recognized as expense in December.
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In cash accounting revenue is recognized when cash against that revenue is received.
In cash accounting Expense is recognized when cash is paid for that expense.
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FASB requires to use Accrual accounting system as it keeps financial statements justified, true and correct.
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