Under accrual accounting, when are revenues and expenses recognized?

• A. When cash is received or paid
• B. When cash is received
• C. When the invoice is issued
• D. When earned or incurred, regardless of cash

Answer: (D)

Under accrual accounting, revenues are recognized when they are earned and expenses are recognized when they are incurred, regardless of when cash is received or paid. This follows the revenue recognition principle and the matching principle, so the financial results reflect the economic activity of the period. For example, a service completed in December is recorded as revenue in December even if the payment arrives in January. Likewise, a December utility used but paid in January is recorded as an expense in December. The other options tie recognition to cash timing or invoicing, which does not align with accrual accounting.