According to cash-basis accounting, when are expenses recorded?

According to cash-basis accounting, when are expenses recorded?

• A. As soon as they are incurred
• B. When products are delivered
• C. When cash is paid
• D. At the end of the accounting period

Answer: (C)

In cash-basis accounting, expenses are recorded when cash is paid out. This method emphasizes the actual cash flow in a business, meaning that expenses are recognized only when the payment is made, not when the obligation or expense is incurred. This approach provides a straightforward view of cash transactions, which can be particularly advantageous for small businesses or individuals who want to track their cash position closely. When considering the other options, the term "incurred" in the first option references when the expense is recognized, which isn’t consistent with the cash-basis approach. The second option discusses the timing of recording expenses based on product delivery, which aligns more with accrual accounting principles. The final option refers to recognizing expenses at the end of the accounting period, which is also characteristic of accrual accounting, not cash-basis accounting. Thus, only the correct choice reflects the fundamental principle of cash-basis accounting.

In cash-basis accounting, expenses are recorded when cash is paid out. This method emphasizes the actual cash flow in a business, meaning that expenses are recognized only when the payment is made, not when the obligation or expense is incurred. This approach provides a straightforward view of cash transactions, which can be particularly advantageous for small businesses or individuals who want to track their cash position closely.

When considering the other options, the term "incurred" in the first option references when the expense is recognized, which isn’t consistent with the cash-basis approach. The second option discusses the timing of recording expenses based on product delivery, which aligns more with accrual accounting principles. The final option refers to recognizing expenses at the end of the accounting period, which is also characteristic of accrual accounting, not cash-basis accounting. Thus, only the correct choice reflects the fundamental principle of cash-basis accounting.