Accruals are best described as requiring an accounting entry: A) only when cash has been paid or received. B) only when a good or service has been provided. C) when an expense has been incurred. D) when the earliest event in a transaction occurs. D is correct…A also looks right?? plz help…thnx
A is not correct as cash is NOT required to change hands in order for an accrued exp/revenue to take place. The general idea is that economic events are recognized by matching revenues to expenses (the matching principle) at the time in which the transaction occurs rather than when payment is made (or received). This method allows the current cash inflows/outflows to be combined with future expected cash inflows/outflows to give a more accurate picture of a company’s current financial condition. Try and get a handle on the matching principle. Its useful to understand the difference between timing of exps vs timing of cash pymts.
FSA question - did you say the correct answer was D? My thought was B had to be right - irrespective of when the cash moves or expense is paid, it should be accrued when the good or service has been provided (and not necessarily the earliest event in a transaction)
d11j0d; if I have signed a deal with you to provide you with chips which requires me to provide you with chips next week for $20, I’m accruing. Still, I have not provided you with any service whatsoever. The deal is there and I’m reasonably sure the money will come in.
D is correct answer…
No december, it’s the least wrong. Bleeck was right.
Acrual-Basis Accounting - recognizes the impact of an economic event as it occurs Example: an accountant does not record revenue when a customer expresses her or his intention to ask for services but RECORDS revenue when a customer asks for services whether or not cash has been paid or received - records revenues as they earned and expenses as they incurred. Expenses are linked to revenues. A: it is not true because an accounting entry is required whether or not cash has been paid or received. The answer A does not take into account the first rule of accrual-basis accounting. B: it is not true because an accounting entry is required if pays a company a service that is supposed to be delivered at future date. The service is not performed yet but the transaction has to be recorded whether or not the service is performed or the goods are delivered. The service revenue is recorded as a liability: Unearned revenue C: Accrual basis accounting pertains to expenses and revenue. Therefore, the C is not right because it describes accrual basis accounting as pertaining only to expenses. Being said that, because if we recognize a transaction as the economic events of an enterprise therefore the response is D and you should begin to record it at the earliest event
i told you guys the answer from schweser…and I was not satisfied with the answer that they provided… Thats why I asked you guys…