What is one of the main characteristics of accrual accounting?

What is one of the main characteristics of accrual accounting?

• A. Focuses on cash transactions
• B. Records income and expenses when they occur
• C. Relies solely on invoices
• D. Does not allow for estimates

Answer: (B)

One of the main characteristics of accrual accounting is that it records income and expenses when they occur, regardless of when cash transactions happen. This means that revenue is recognized when it is earned, and expenses are recognized when they are incurred, even if no cash has changed hands at that moment. This approach provides a more accurate picture of a company’s financial status and performance over a given period compared to cash accounting, which only records transactions when cash is received or paid. This characteristic is essential for businesses to understand their financial obligations and resources, making it particularly useful for financial reporting and planning.

One of the main characteristics of accrual accounting is that it records income and expenses when they occur, regardless of when cash transactions happen. This means that revenue is recognized when it is earned, and expenses are recognized when they are incurred, even if no cash has changed hands at that moment. This approach provides a more accurate picture of a company’s financial status and performance over a given period compared to cash accounting, which only records transactions when cash is received or paid. This characteristic is essential for businesses to understand their financial obligations and resources, making it particularly useful for financial reporting and planning.