Under accrual accounting, revenues are recognized when earned and expenses are recognized when incurred.

• A. True
• B. False
• C. Only for large organizations
• D. Not specified

Answer: (A)

Under accrual accounting, revenues are recognized when the seller has satisfied the performance obligation—when the goods or services are delivered—so revenue is recorded in the period in which it is earned. Expenses are recognized when the related economic benefits are consumed or when the obligation to pay is incurred, not when cash actually leaves the company. This approach aligns with the revenue recognition principle and the matching principle, ensuring that the income statement reflects the economic activity of the period and pairs revenues with the expenses that generated them, regardless of cash flows.

The other options don’t fit because accrual accounting is not limited to large organizations; it applies broadly under GAAP and IFRS. It also isn’t unspecified—this is a defining feature of accrual accounting. And while some entities may use cash accounting, that method recognizes revenues and expenses only when cash is received or paid, which is outside accrual accounting.