Accrual Accounting: Revenues, Matching Principle, and Expense Recognition

Revenues Recognition in Accrual Accounting

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Question

Which of the following is/are true under accrual accounting?

I. Revenues are recognized when goods are delivered.

II. Revenues are recognized when cash is received.

III. Matching principle accounting is followed under accrual accounting.

IV. Cash outflows determine expense recognition.

Answers

Explanations

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A. B. C. D.

Explanation

Accrual accounting follows the Matching Principle, which requires that revenues and gains be recognized when earned and expenses and losses be recognized when incurred. Hence, revenue recognition is completely separate from cash flows. In the sales process, the earnings process is completed when goods are delivered and that's when revenue is recognized under accrual accounting.

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