Which statement accurately describes accrual accounting compared to cash accounting?

• A. Accrual recognizes revenues and expenses when earned or incurred, regardless of cash, while cash accounting records only cash transactions.
• B. Accrual records only cash transactions.
• C. Cash accounting recognizes revenues and expenses when earned or incurred.
• D. Accrual and cash accounting are identical.

Answer: (C)

Timing of recognition distinguishes accrual from cash accounting. In accrual accounting, revenues are recorded when earned and expenses when incurred, regardless of when cash is actually received or paid. This method links income and related costs to the period in which the economic activity occurs, not to the cash flow timing. In contrast, cash accounting records transactions only when cash changes hands—revenues when cash is received and expenses when cash is paid.

So the description that accurately reflects accrual accounting is that revenues and expenses are recognized when earned or incurred, independent of cash, while cash accounting records only cash transactions. The other statements mix up when recognition occurs or claim the two methods are identical, which they are not.