Application of generally accepted accounting principles requires that the accrual basis of accounting be used for reporting revenues and expenses on the income statement.

Question

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Generally accepted accounting principles (GAAP) require the use of accrual accounting for reporting revenues and expenses on the income statement. This means that revenues and expenses are recognized when they are earned or incurred, regardless of when cash is received or paid. This is in contrast to cash accounting, which recognizes revenues and expenses only when cash changes hands.

Application of Generally Accepted Accounting Principles Requires That the Accrual