Under which basis are revenues recognized when earned and expenses when incurred?

• A. Cash basis
• B. Accrual basis
• C. Journal
• D. General journal

Answer: (B)

Accrual basis accounting recognizes revenues when they are earned and expenses when they are incurred. This means you record revenue when you deliver goods or perform services, even if cash hasn’t been received yet, and you record expenses when the related benefit is received, even if you haven’t paid yet. This aligns with the revenue recognition and matching principles, providing a clearer picture of profitability for a period. Cash basis would delay both revenue and expense recognition until cash changes hands, which can distort timing. A journal is simply a record-keeping tool, not a method of recognition.