The amount of gross profit for a merchandising business will be the same under both the accrual basis and the cash basis of accounting.

Question

Quizplus · Accepted Answer

The amount of gross profit for a merchandising business can differ under the accrual basis and the cash basis of accounting. Under the accrual basis, revenue is recognized when earned and expenses are recognized when incurred, regardless of when cash is received or paid. Under the cash basis, revenue is recognized when cash is received and expenses are recognized when cash is paid, regardless of when they were actually earned or incurred. Therefore, if a business sells inventory on credit in one accounting period but receives payment in the following accounting period, the gross profit will be recognized in the first period under the accrual basis but in the second period under the cash basis.

The Amount of Gross Profit for a Merchandising Business Will