Accrual Accounting: When Are Expenses Recorded?

Question:

What is the basis for recording expenses in accrual accounting?

Answer:

Expenses in accrual accounting are recorded when they are incurred, regardless of when they are paid.

In accrual accounting, expenses are recorded when they are incurred (option b). This means that expenses are recognized and recorded in the accounts at the time in which the goods or services are received or consumed, regardless of when the payment is made or received.

For example, if a company receives an invoice for a utility bill in December but pays it in January, the expense would still be recorded in December, when it was incurred.

Accrual accounting provides a more accurate picture of a company's financial health by matching expenses to the period in which they are incurred, even if the cash flow occurs at a different time.