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CSEET · Fundamentals of Accounting · Basic Concepts and Principles of Accounting

Under the accrual basis of accounting as described in the ICAI Framework, when are the effects of transactions and other events recognised?

Under the accrual basis, the effects of transactions and events are recognised when they occur, not when cash or a cash equivalent is received or paid. They are recorded and reported in the periods to which they relate, which gives users information about future cash obligations and receivables.

  1. AWhen they occur, and not when cash or a cash equivalent is received or paidCorrect
  2. BOnly when cash or a cash equivalent is received or paid
  3. CAt the end of the financial year, irrespective of when they occur
  4. DWhen the auditor approves the financial statements

Explanation

The Framework says that under the accrual basis the effects of transactions are recognised when they occur, not when cash is received or paid. They are reported in the periods to which they relate. The cash-receipt option describes the cash basis, which is not the accrual basis.

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