Which of the following statements is correct regarding accrual accounting?

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BlackTom AI · Accepted Answer

Here is a careful analysis of each option regarding accrual accounting, with emphasis on the core principles involved.
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. Under accrual, revenues are recorded when earned and expenses when incurred, regardless of cash movements. Therefore, this statement is incorrect for accrual accounting.
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 the fundamental concept of accrual accounting: recognition is tied to when the economic activity occurs (earned or incurred), not when cash changes hands. It correctly distinguishes accrual from cash-based timing. Hence, this statement accurately describes accrual accounting.
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 receipt timing for incomes with incurred timing for expenses, which is inconsistent and inaccurate for accrual accounting, where both income and expense recognition should be based on accrual (earned and incurred), not cash receipts alone. Therefore, this statement 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 splits recognition criteria in a way that is not aligned with accrual accounting, which requires both income and expenses to be recognized when they occur/are incurred, independent of when cash payments are made. Thus, this statement is also incorrect.
In summary, the statement that best reflects accrual accounting is the one stating that income and expenses are recognized in the period in which they occur (not based on cash receipt or payment). The remaining options depict cash-basis or mixed timing, which do not describe accrual accounting accurately.

Which of the following statements is correct regarding accrual accounting?

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