Question

Which of the following is an accepted method of accounting?

• A. Cash Accounting
• B. Accrual or Mercantile Accounting
• C. Both Accrual Accounting and Cash Accounting
• D. None of the above

Answer 1

The correct option is B Accrual or Mercantile Accounting

With the accrual method, income and expenses are recorded as they occur, regardless of whether or not cash has actually changed hands. In this type of system cost and revenue are matched on the basis of relevant time period. It is also known as mercantile system of accounting. Further if any cost has lost its utility then it is written off and if the expenses are due, need to be recorded in books irrespective of payment is done or not.

Almost every company uses the accrual accounting method, since it provides the most accurate representation of the company's financial state.