What Is the Purpose of the Accrual Basis of Accounting

question 13

Multiple Choice

What is the purpose of the accrual basis of accounting?

• A)Recognize revenue when it is collected from customers.
• B)Match assets with liabilities during the proper accounting period.
• C)Recognize expenses when cash disbursements are made.
• D)Recognizing revenue when it is earned and expenses when they are incurred,regardless of when cash changes hands.

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Definitions:

Direct Materials

Raw materials that are directly used in the production of a product and can be easily traced to the finished product.

Conversion Costs

Sum of labor costs and overhead expenses associated with the transformation of raw materials into finished goods.

First-In

Typically part of the phrase "First-In, First-Out" (FIFO), a method used to assign costs to inventory on the basis that the first items entered into inventory are the first sold.

Equivalent Units

A term used in cost accounting to denote a conversion measure that expresses the amount of work done on partially completed units in terms of fully completed units.