Which statement records all revenues earned and expenses incurred, regardless of cash?

Which statement records all revenues earned and expenses incurred, regardless of cash?

• A. Cash Flow Statement
• B. Balance Sheet
• C. Income Statement
• D. Statement of Changes in Equity

Answer: (D)

Under accrual accounting, revenues are recognized when they are earned and expenses are recognized when they are incurred, regardless of when cash changes hands. The financial statement that collects all of these earned revenues and incurred expenses over a period is the income statement, which shows revenues minus expenses to arrive at net income or loss for that period. The cash flow statement, by contrast, tracks actual cash inflows and outflows, which can differ from when revenue and expenses are recognized. The balance sheet shows assets, liabilities, and shareholders’ equity at a point in time. The statement of changes in equity details how the components of equity change over the period (like retained earnings and contributed capital). So, because the question specifies recording all revenues earned and expenses incurred regardless of cash, the income statement is the correct one. For example, revenue earned but not yet collected would appear on the income statement, while the cash flow statement would only reflect the cash when it’s actually received.

Under accrual accounting, revenues are recognized when they are earned and expenses are recognized when they are incurred, regardless of when cash changes hands. The financial statement that collects all of these earned revenues and incurred expenses over a period is the income statement, which shows revenues minus expenses to arrive at net income or loss for that period.

The cash flow statement, by contrast, tracks actual cash inflows and outflows, which can differ from when revenue and expenses are recognized. The balance sheet shows assets, liabilities, and shareholders’ equity at a point in time. The statement of changes in equity details how the components of equity change over the period (like retained earnings and contributed capital).

So, because the question specifies recording all revenues earned and expenses incurred regardless of cash, the income statement is the correct one. For example, revenue earned but not yet collected would appear on the income statement, while the cash flow statement would only reflect the cash when it’s actually received.