Which transaction is most likely to be recorded differently under cash-basis accounting than under accrual-basis accounting?
Correct answer: C. Payment of an expense incurred earlier
- A. Purchase of equipment for immediate cash
- B. Cash sale made on the same day
- C. Payment of an expense incurred earlier
- D. Owner's cash investment
Explanation
Under cash basis, the expense is recorded when payment is made, whereas accrual basis records it when it is incurred. The other transactions occur with immediate cash recognition in both bases.
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About Accounting Principles
Accounting principles explain the rules used to record, classify and report business transactions. Coverage includes the accounting equation, double-entry system, accrual and cash bases, matching and prudence concepts, consistency, going concern, business entity, and the difference between capital and revenue items.
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