Using Accrual Accounting, Expenses Are Recorded and Reported Only

question 21

Multiple Choice

Using accrual accounting, expenses are recorded and reported only

• A) when they are incurred for the purpose of generating revenue, whether or not cash is paid.
• B) when they are incurred and paid at the same time.
• C) if they are paid before they are incurred.
• D) if they are paid after they are incurred.

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Definitions:

Reconciling Items

Entries that are made to adjust the books of accounts in order to ensure that two sets of records (usually the bank statement and the company's records) are in agreement.

Adjusting Journal Entry

An entry made in the accounting records at the end of an accounting period to allocate income and expenditure to the appropriate period.

Deferred Revenue Account

An account on the balance sheet that represents payment received by a company for goods and services not yet delivered or rendered, considered a liability.

Liability Account

A liability account is a financial reporting account that is used to record obligations or debts that a company owes to others, such as loans, accounts payable, or mortgages.