Question

Which of the following is in accordance with generally accepted accounting principles?

Accrual-basis accounting

Cash-basis accounting

Both accrual-basis and cash-basis accounting

Neither accrual-basis nor cash-basis accounting

Answer 1

Answer:

The correct answer is the first option - Accrual-basis accounting.

Only Accrual Basis Accounting is accepted by the Generally Accepted Accounting Principles (GAAP).

Cash-basis Accounting is not accepted by the Generally Accepted Accounting Principles (GAAP) because it does not show the correct Assets, Liabilities, Expense or Revenues. In Cash-basis accounting, incomes , expenses, etc are recorded only when the payment is made or received.

Accrual Basis Accounting is accepted by the Generally Accepted Accounting Principles (GAAP) as it follows revenue recognition, matching concept better. This method shows the performance of a company more accurately. It gives a better picture of the income and expenses during a time period accurately.

Thus, the first option is correct and other options are incorrect.