In cash accounting, when are revenues and expenses recorded?

• A. Revenues and expenses are recorded when cash is received and paid
• B. Revenues recognized when earned and expenses incurred
• C. All items recognized on accrual basis
• D. Revenue recognized when cash is received but expenses when incurred

Answer: (A)

Cash accounting records revenues when cash is actually received and expenses when cash is actually paid. This means revenue is recognized only after payment is received, and an expense is recorded only when the cash is paid out. So, if you perform a service in December but aren’t paid until January, the revenue is recorded in January. If you incur an expense in December but pay in January, the expense is recorded in January. The other statements describe accrual accounting or mixed methods, which don’t fit cash accounting.