Multiple Choice: Cash Versus Accrual Income Select the best answer for each of the following:

When cash-basis income measurement is used:

a. Income nearly always will be greater than income reported on an accrual basis.

b. Income nearly always will be less than income reported on an accrual basis.

c. Actual cash receipts and cash payments serve as a basis for determining the amount of income to be reported.

d. Actual cash receipts and cash payments are adjusted to match the cash flows with the timing of the underlying economic events.

The cash basis of income measurement is most likely to be appropriate for:

a. A small company that sells on credit and pays for everything with cash.

b. A major corporation with a great deal of cash coming in and going out each day.

c. A middle-sized company that leases all facilities and equipment annually and sells only for cash.

d. A small video rental store that has just purchased a large number of new video tapes.

3. The cash basis of income measurement:

a. Does not recognize insurance expense in the current period if a three-year policy was purchased in the prior period.

b. Recognizes revenue at the time the product is delivered to the customer.

c. Recognizes the cost of producing the product as an expense at the time the cash payment is received from the sale of the product.

d. All of the above.
The accrual basis of income measurement:

a. Recognizes revenue at the time cash payment is received from selling a product to a customer.

b. Recognizes revenue in the period in which a product is produced.

c. Recognizes the cost of producing a product as an expense in the period in which the product is produced.

d. Recognizes the cost of producing a product as an expense in the period in which the product is sold.
The matching concept means that:

a. The full cost of a noncurrent asset is matched against revenue in the period in which the asset is purchased.

b. A proportionate share of the cost of a long-lived asset is matched against revenue in the periods in which the asset is used.

c. The cost of producing a product is treated as an expense in the period in which the product is produced.

d. The cost of producing a product is treated as an expense in the period in which the product is made available for sale.