In cash basis accounting, when are revenues recognized?

In cash basis accounting, when are revenues recognized?

• A. When the sale is made
• B. When cash is received
• C. When the product is delivered
• D. When the invoice is issued

Answer: (B)

In cash basis accounting, revenues are recognized when cash is received. This method differs from accrual accounting, where revenues are recognized when they are earned, regardless of when cash is received. Under the cash basis, the timing of cash transactions is crucial; revenues are only recorded when the actual cash inflow occurs. This means if a sale is made or a service is performed, the revenue is only recognized at the moment payment is received, ensuring that the financial statements reflect actual cash movement rather than potential future income. This approach provides a clear view of the cash position of the business, making it particularly useful for small businesses or individuals managing cash flow.

In cash basis accounting, revenues are recognized when cash is received. This method differs from accrual accounting, where revenues are recognized when they are earned, regardless of when cash is received. Under the cash basis, the timing of cash transactions is crucial; revenues are only recorded when the actual cash inflow occurs. This means if a sale is made or a service is performed, the revenue is only recognized at the moment payment is received, ensuring that the financial statements reflect actual cash movement rather than potential future income. This approach provides a clear view of the cash position of the business, making it particularly useful for small businesses or individuals managing cash flow.