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The primary difference between the accrual basis and the cash basis of accounting is: ___________

a. The accrual basis records revenues when services or products are delivered and records expenses when cash is paid.
b. The pocrual basis records revenues when services or products are delivered and records expenses when incurred.
c. The cash basis records revenues when services or products are delivered and records expenses when paid.
d. The cash bases records revenues when cash is received and records expenses when cash is paid

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Answer:

  • b. The accrual basis records revenues when services or products are delivered and records expenses when incurred.
  • d. The cash bases records revenues when cash is received and records expenses when cash is paid

Explanation:

The accrual basis in accounting records revenue only when the goods associated have been delivered and records expenses when the company incurs it regardless of when the company actually pays.

This is unlike the cash basis that records both expenses and revenue only when cash passes hands. What this means is that for instance, if a company receives $5,000 for goods they are to deliver next year, the cash basis would record this as revenue for the year but the accrual basis would record it as revenue only after the goods are delivered the next year which would make it next year's revenue.