Which statement about cash versus actual accounting is most correct?

• A. In cash accounting, an event is recognized when a cash transaction occurs.
• B. In cash accounting, revenue is recognized when earned, regardless of cash.
• C. In cash accounting, expenses are recognized when the cost is incurred, not when cash is paid.
• D. In cash accounting, neither revenue nor expenses are recognized in the period until cash changes hands.

Answer: (A)

In cash accounting, recognition happens only when cash actually moves. That means revenue is recorded when cash is received and expenses are recorded when cash is paid. The statement that describes recognition at the moment a cash transaction occurs captures this rule best. It contrasts with accrual accounting, where revenue is recognized when earned and expenses when incurred, regardless of cash flow. The other options describe accrual timing (revenue when earned or expenses when incurred) or a strict cash-change approach that doesn’t align with the practical way cash basis is commonly described, so they’re not as accurate for cash accounting.