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CA Foundation · Accounting · Theoretical Framework

Under the cash basis of accounting, when is a credit sale of goods recorded?

Under the cash basis, a credit sale is recorded only when cash is actually received from the customer. Delivery, invoicing or receipt of an order does not create an entry, because the cash basis ignores receivables and payables until money moves.

  1. AWhen the goods are delivered to the customer
  2. BWhen the sales invoice is raised
  3. CWhen the cash is actually received from the customerCorrect
  4. DWhen the order is received from the customer

Explanation

Under the cash basis, a transaction is recorded only when cash is received or paid. Delivery or invoicing of a credit sale does not trigger any entry. Recording at delivery or invoicing is the feature of the accrual basis, which is why those options are wrong.

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