CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Principles, Concepts and Conventions
Which system of accounting records transactions only when cash is received or paid, ignoring amounts that are merely due or outstanding?
The cash system records transactions only when cash is actually received or paid, so outstanding or prepaid amounts are ignored. The accrual or mercantile system differs by recording items when earned or incurred, regardless of cash movement.
- AAccrual system
- BCash systemCorrect
- CMercantile system
- DDouble entry system
Explanation
Under the cash system, revenue and expenses are recorded only when cash is actually received or paid. The accrual (mercantile) system records them when they are earned or incurred, regardless of cash movement. Double entry is a method of recording, not a basis of recognising income.
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