Which statement best contrasts cash and accrual accounting regarding revenue recognition?

Which statement best contrasts cash and accrual accounting regarding revenue recognition?

• A. Cash: recognize when cash is received; Accrual: recognize when earned.
• B. Cash: recognize when earned; Accrual: recognize when cash is received.
• C. Both are identical.
• D. Accrual ignores timing.

Answer: (A)

Revenue recognition timing depends on the accounting method. Under cash-basis accounting, revenue is recorded only when cash is actually received. Under accrual accounting, revenue is recognized when it is earned—when the seller has satisfied the performance obligation—regardless of when cash is collected. This means revenue can appear before cash is received (via accounts receivable) or after cash is received, depending on when the earning occurs. For example, a service performed in December but billed and paid in January would be recorded as revenue in December under accrual, but in January under cash basis. The statement that best contrasts the two methods is that cash basis recognizes revenue when cash is received, while accrual recognizes revenue when it is earned.

Revenue recognition timing depends on the accounting method. Under cash-basis accounting, revenue is recorded only when cash is actually received. Under accrual accounting, revenue is recognized when it is earned—when the seller has satisfied the performance obligation—regardless of when cash is collected. This means revenue can appear before cash is received (via accounts receivable) or after cash is received, depending on when the earning occurs. For example, a service performed in December but billed and paid in January would be recorded as revenue in December under accrual, but in January under cash basis. The statement that best contrasts the two methods is that cash basis recognizes revenue when cash is received, while accrual recognizes revenue when it is earned.