(L.O. 5) Which of the following statements is associated with the accrual basis of accounting?

a. The timing of cash receipts and disbursements is emphasized.

b. A minimum amount of record keeping is required.

c. This method is used less frequently by businesses than the cash method of accounting.

d. Revenues are recognized in the period they are earned, regardless of the time period the cash is received.

Approach and Explanation: Mentally define the accrual basis of accounting. Write down the key words and phrases of your definition. Compare each answer selection with your definition and choose the one that best matches. Using the accrual basis of accounting, events that change a company’s financial statements are recorded in the periods in which the events occur. Thus, revenues are recognized in the period in which they are earned by the satisfaction of the related performance obligation, and expenses are recognized in the period in which they are incurred, regardless of when the related cash is received or paid. Answer selections “a” and “b” refer to the cash basis of accounting which is not GAAP. (Solution = d.)