Which accounting method recognizes revenue in the period it is realized, even if cash has not yet been received?

• A. Financial accounting
• B. Managerial accounting
• C. Accrual accounting
• D. Cash basis

Answer: (C)

Accrual accounting is the method that recognizes revenue in the period it is earned, even if cash hasn’t arrived yet. This follows the matching principle, recording the revenue when the service is provided or the performance is complete, and recognizing related receivables. In healthcare, you record revenue when the service is delivered, with an entry that increases accounts receivable and revenue. Later, when the patient pays, you increase cash and decrease accounts receivable, with revenue already recorded. Cash basis would wait for cash to be received, which can misstate the period’s true performance.