Under accrual accounting, are all expenses reported on the income statement cash costs?

• A. Yes, all
• B. No, not necessarily
• C. Only depreciation
• D. Always match cash payments

Answer: (B)

In accrual accounting, expenses are recognized when the economic activity that causes them occurs, not necessarily when cash leaves the company. The income statement shows the cost of resources used during the period, which includes non-cash items like depreciation or amortization that allocate past cash outlays over time. This means an expense can appear without a current cash outlay, and conversely, a cash payment might be recorded as a asset (prepaid) and expensed later. So not all expenses on the income statement are cash costs, and cash payments do not always perfectly align with expense recognition.