Question

A system in which accounting entries are made on the basis of amounts having become due for payment or receipt is called _______________.

• A. Cash System
• B. Accrual basis of Accounting
• C. Matching concept
• D. On-going concept

Answer 1

Answer: (B)

Accrual basis of Accounting

There are two ways of accounting:

1. cash system of accounting; and

2. accrual system of accounting.

Accrual system of accounting defines that the revenues and expenses are to be accounted in the books of account on the basis of their accrual and not on the basis of their payment.

For example, if any salary is due, it should be debited to the salary account, irrespective of when it is paid.

The same applies to incomes. If any income is due to be received, the same has to be credited in the respective income account, irrespective of it being received or not.