Understanding Cash and Accrual Accounting

What is the main difference between cash and accrual accounting?

• Accrual accounting records transactions only at the end of the year.

• Cash accounting records transactions when cash is exchanged.

• Accrual accounting records transactions when cash is exchanged.

• Cash accounting records transactions when they are agreed upon.

In cash basis accounting, when is revenue recognized?

• At the end of the fiscal year.

• When the cash is received.

• When the invoice is sent.

• When the service is performed.

During Month 1, what was the profit after catering an event costing $100 and receiving $200?

• $150

• $100

• $200

• $50

In Month 2, why was there a negative profit recorded?

• Expenses were higher than revenue received.

• The customer paid in advance.

• The customer paid less than expected.

• The event was canceled.

What was the cash balance at the end of Month 2?

• $100

• $200

• $0

• -$100

In Month 3, how much revenue was recorded from the previous month's customer?

• $200

• $400

• $800

• $600

What was the profit in Month 3 when no catering was done?

• $600

• $400

• $800

• $200

In Month 4, what was the cost of catering the last customer's event?

• $100

• $50

• $150

• $200

What was the cash balance at the end of Month 4?

• $300

• $600

• $400

• $500

What is a major drawback of cash basis accounting as demonstrated in the example?

• It requires complex calculations.

• It does not allow for any profit.

• It does not reflect the true financial state consistently.

• It is only suitable for large businesses.