Under the accruals concept, which statement is true?

Under the accruals concept, which statement is true?

• A. All expenses and income are recorded only when cash is paid or received.
• B. Financial statements are prepared on a cash basis.
• C. All expenses incurred and income gained in a period must be included in the accounts of that period, regardless of payment.
• D. Advertising prepaid should be included in the current year's accounts.

Answer: (C)

Under the accruals concept, income is recorded when earned and expenses are recorded when incurred, regardless of when cash actually moves. This ensures revenues and expenses are matched to the period to which they relate. The statement that all expenses incurred and income gained in a period must be included in the accounts of that period, regardless of payment, sums up this idea. It reflects recognizing what has happened in the period, not waiting for cash receipts or payments. The other statements describe cash basis recording, where items are only recorded when cash changes hands. Advertising prepaid is treated as a prepaid asset and expensed over the periods it benefits, not fully included in the current year’s accounts, which is why that statement isn’t correct under accruals.

Under the accruals concept, income is recorded when earned and expenses are recorded when incurred, regardless of when cash actually moves. This ensures revenues and expenses are matched to the period to which they relate.

The statement that all expenses incurred and income gained in a period must be included in the accounts of that period, regardless of payment, sums up this idea. It reflects recognizing what has happened in the period, not waiting for cash receipts or payments.

The other statements describe cash basis recording, where items are only recorded when cash changes hands. Advertising prepaid is treated as a prepaid asset and expensed over the periods it benefits, not fully included in the current year’s accounts, which is why that statement isn’t correct under accruals.