Which of the following statements is correct regarding accrual accounting?

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Question restatement: Which statement correctly describes accrual accounting?

Option a: 'Income and expenses are only recorded in the period when the cash is received or paid, rather than in the period when actual transactions occurred.' This describes cash-basis accounting, not accrual accounting, so it is incorrect for accrual.

Option b: 'Income and expenses are only recorded in the period in which occur, rather than in the period when cash is received or paid.' This aligns with accrual accounting, which recognizes revenues when earned and expenses when incurred, regardless of cash movements. It captures the core principle accurately.

Option c: 'Incomes are only recognised in the period when cash is received and expenses are only recognised in the period when they occurred.' This mixes cash-based timing for incomes with expense timing tied to occurrence, which is inconsistent with accrual fundamentals where both revenues and expenses are recognized when earned or incurred, not when cash flows occur or exact timing is mixed. It is incorrect.

Option d: 'Incomes are only recognised in the period when they occur and expenses are only recognised in the period when cash is paid.' This reverses typical accrual treatment for expenses (expenses are incurred when incurred, not only when cash is paid) and also creates misunderstanding about revenue recognition timing, making it inaccurate.

Summary: Option b correctly states that under accrual accounting, income and expenses are recorded in the period in which they occur, not when cash is received or paid, distinguishing it from cash-basis methods. The other options reflect cash-basis thinking or mixed timing, which do not describe accrual accounting accurately.

MCD2150 Accounting for Managers - Trimester 2 - 2025

Which of the following statements is correct regarding accrual accounting?

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