Which of the following relates to cash basis of accounting?
-
Accruals and prepayments are considered
- Debtors and creditors are recorded
- Fixed assets are written off in the year of purchase
- Profits are maximized
The correct answer is: A
Explanation
The cash basis is a method of recording accounting transactions for revenue and expenses only when the corresponding cash is received or payments are made. Thus, you record revenue only when a customer pays for a billed product or service, and you record a payable only when it is paid by the company.