Which statement is true about accrual expenses?

Which statement is true about accrual expenses?

• A. They are recognized in the period incurred.
• B. They are recognized only when paid.
• C. They are never recognized.
• D. They are recognized only when cash is received.

Answer: (A)

Under accrual accounting, costs are recorded when the obligation to pay arises, not when cash leaves the company. This follows the matching principle, which aligns expenses with the revenues they help generate in the same period. So an accrual expense is recognized in the period it’s incurred, even if payment occurs later. For example, utilities used in December but billed in January are expensed in December, with a liability recorded for the amount owed. The other statements describe cash-basis treatment (recognizing only when paid or only when cash is received) or are simply incorrect, so they don’t fit accrual practice.

Under accrual accounting, costs are recorded when the obligation to pay arises, not when cash leaves the company. This follows the matching principle, which aligns expenses with the revenues they help generate in the same period. So an accrual expense is recognized in the period it’s incurred, even if payment occurs later. For example, utilities used in December but billed in January are expensed in December, with a liability recorded for the amount owed. The other statements describe cash-basis treatment (recognizing only when paid or only when cash is received) or are simply incorrect, so they don’t fit accrual practice.