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CS Executive · Corporate Accounting and Financial Management · Introduction to Accounting

Sharma & Co. sold goods worth Rs 80,000 on credit in March 2026, and the customer paid in April 2026. The firm's financial year ends on 31 March. Under the accrual basis of accounting, in which year is the Rs 80,000 recognised as revenue?

The revenue belongs to the year ending 31 March 2026. Under the accrual basis, income is recognised when it is earned, that is when the sale is made, not when cash is collected, so the April 2026 receipt does not change the year.

  1. AYear ending 31 March 2027, when cash is received
  2. BYear ending 31 March 2026, when the sale is madeCorrect
  3. CHalf in each year
  4. DYear in which the customer's bank clears the cheque, regardless of the sale date

Explanation

Accrual accounting recognises revenue when it is earned, i.e. when the sale is made, irrespective of when cash is received. The sale occurred in March 2026, so it belongs to the year ending 31 March 2026. Recognising on receipt of cash is the cash basis, which is wrong here.

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