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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Principles, Concepts and Conventions

Which accounting concept is followed when a firm records a sale of Rs 80,000 made on credit in December, even though the customer will pay only in February?

The accrual concept applies. Revenue is recorded when the sale is earned, in December, regardless of when cash is received in February. The firm therefore debits the customer's account and credits sales, instead of waiting for the cash receipt as the cash basis would require.

  1. ACash basis of accounting
  2. BAccrual conceptCorrect
  3. CDual aspect is not applicable
  4. DConservatism concept

Explanation

The accrual concept recognises revenues and expenses when they are earned or incurred, not when cash is received or paid. The sale is made in December, so it is recorded then, with a debtor created for Rs 80,000. Cash basis would wait until February.

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