Which of the Following Is Consistent with the Cash-Basis of Accounting

question 27

Multiple Choice

Which of the following is consistent with the cash-basis of accounting?

• A) Recording a liability for a lawsuit the company is expected to lose
• B) Recording bad debt expense when an account proves uncollectible
• C) Recording salaries payable at the end of an accounting period
• D) Recording revenue when earned

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Definitions:

Autonomous Consumption

Spending by consumers that is not influenced by changes in current income levels, typically covering basic necessities.

Disposable Income

The pool of funds households have for saving and spending pursuits after income taxes are factored out.

Consumption

The use of goods and services by households, constituting a major part of the economy's total output.

Permanent Income Hypothesis

A theory proposed by Milton Friedman suggesting that an individual's consumer behavior is determined by their long-term income expectations rather than their current income.