Which accounting basis records income when received and expenses when paid?

• A. Cash basis
• B. Accrual basis
• C. Journal
• D. Journalizing

Answer: (A)

Income is recognized when cash is actually received and expenses are recognized when cash is actually paid. This cash-basis approach centers on real cash flow, so revenue from a sale isn’t recorded until the money comes in, and an expense isn’t recorded until you pay it.

This differs from accrual accounting, which records revenue when it’s earned and expenses when they’re incurred, regardless of when cash moves. That method aligns recognition with the timing of economic activity rather than cash movements.

The terms for recording transactions, like a journal or journalizing, describe how entries are logged, not when to recognize income or expenses. They’re recording tools, not methods of revenue/expense recognition.