Which two general accounting methods are used to report business income?

Which two general accounting methods are used to report business income?

• A. Cash and accrual
• B. Cash-based and accrual-based
• C. Single-entry and double-entry
• D. GAAP and IFRS

Answer: (A)

When reporting income, you decide when revenue and related expenses are recognized. The two general methods are cash basis and accrual basis. In the cash basis method, you record revenue only when cash is received and expenses only when cash is paid. In the accrual basis method, you record revenue when it is earned (regardless of when cash arrives) and expenses when they are incurred (regardless of when cash leaves your hands). This difference matters because accrual matches revenues with the expenses that helped generate them, giving a more accurate picture of profitability for the period. For example, a sale completed in December but paid in January would be recorded as December revenue under accrual, but January revenue under cash basis. Accrual is the standard for formal financial reporting, while cash basis is simpler and often used by smaller operations for tax purposes.

When reporting income, you decide when revenue and related expenses are recognized. The two general methods are cash basis and accrual basis. In the cash basis method, you record revenue only when cash is received and expenses only when cash is paid. In the accrual basis method, you record revenue when it is earned (regardless of when cash arrives) and expenses when they are incurred (regardless of when cash leaves your hands). This difference matters because accrual matches revenues with the expenses that helped generate them, giving a more accurate picture of profitability for the period. For example, a sale completed in December but paid in January would be recorded as December revenue under accrual, but January revenue under cash basis. Accrual is the standard for formal financial reporting, while cash basis is simpler and often used by smaller operations for tax purposes.