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Under the _____ accounting system, transactions are recorded when they occur.Group of answer choicescash-basedthroughputmanagerialaccrual

Question

Under the _____ accounting system, transactions are recorded when they occur.

Group of answer choices

  • cash-based
  • throughput
  • managerial
  • accrual
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Solution

The correct answer to the question is "accrual."

In an accrual accounting system, transactions are recorded when they occur, regardless of when the cash is actually received or paid. This means that revenues are recognized when they are earned, and expenses are recognized when they are incurred. This method adheres to the principle of matching revenues to expenses in the period they occur, providing a more accurate picture of a company's financial performance over time.

In contrast, a cash-based accounting system records transactions only when cash changes hands. This can provide a misleading view of a company’s financial condition, particularly if there are significant receivables or payables at a given time.

In summary, accrual accounting offers a more comprehensive view of a company's financial status by recognizing economic events in the periods they affect, which is essential for accurate financial analysis and decision-making.

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