The accrual basis of accounting
A) must be used by all taxpayers.
B) recognizes revenue when earned and expenses when incurred.
C) does not record depreciation.
D) records depreciation but expenses all inventory purchases.

Question

Quizplus · Accepted Answer

The accrual basis of accounting recognizes revenue when it is earned and expenses when they are incurred, regardless of when cash is actually received or paid out. This method of accounting is widely used in practice, especially by larger companies and is required for businesses with gross receipts of over $5 million by the Internal Revenue Service (IRS). The other options given are incorrect.

The Accrual Basis of Accounting