Under which basis are revenues recorded when cash is received and expenses when paid?

Under which basis are revenues recorded when cash is received and expenses when paid?

• A. Journal
• B. Accrual basis
• C. Cash basis
• D. Accounts payable

Answer: (C)

The main idea here is cash basis accounting. In this method, revenues are recorded only when cash is actually received, and expenses are recorded only when cash is paid out. This keeps the books tightly tied to real cash flow and is straightforward for smaller businesses. In contrast, accrual basis would recognize revenue when it’s earned (even if cash hasn’t come in yet) and expenses when they’re incurred (even if cash hasn’t gone out yet), using concepts like accounts receivable and accounts payable. The other options aren’t about when you recognize revenues or expenses—one is a records tool (journal), and the other is a liability account (accounts payable).

The main idea here is cash basis accounting. In this method, revenues are recorded only when cash is actually received, and expenses are recorded only when cash is paid out. This keeps the books tightly tied to real cash flow and is straightforward for smaller businesses.

In contrast, accrual basis would recognize revenue when it’s earned (even if cash hasn’t come in yet) and expenses when they’re incurred (even if cash hasn’t gone out yet), using concepts like accounts receivable and accounts payable. The other options aren’t about when you recognize revenues or expenses—one is a records tool (journal), and the other is a liability account (accounts payable).