Question

The accrual basis, not the cash basis, recognizes all aspects of the credit phenomenon.

Select one:
True
False

Answer 1

True

Accrual refers to an entry made in the books of accounts related to the recording of revenue or expense paid without any exchange of cash.

The use of accrual accounting is typically useful in businesses where there are a lot of credit transactions or the goods and services are sold on credit, which simply means that there was no exchange of cash.An expense is occurred or recorded when the raw material is ordered and not when the actual payment is made to the supplier by either cash or cheque. The only drawback of this type of accounting system is that you, as a firm, might end up paying tax on revenues even when you might have not received it (credit).

Under the accrual method of accounting expenses are balanced with revenues on the income statement. It helps give a better picture of the company's financial conditio