Question

Sylvia records the purchases of inventory in the current accounting period even though she will actually pay for the inventory in the next accounting period. Which accounting principle does she comply with?

A)business entity concept
B)cash based accounting principle
C)accrual basis of accounting
D)going concern concept

Answer 1

The answer is: C.accrual basis of accounting

Accrual basis of accounting would record a certain transaction as soon as it happen, even though an exchange of payment has not been made. Compared to any other basis, accrued basis tend to the most likely to represent the actual financial condition of a company. This is why this basis is used as the current industry standard.