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### PSC 2-2 Explain Accounting Principles

Identify the accounting method being used in each situation:

1. Phillips Company performs work for a client but does not yet record revenue, as payment has not been received.
- A. Cash basis
- B. Accrual basis

2. Sampson Corporation receives payment from a client but does not yet record revenue, as the work has not been performed.
- A. Cash basis
- B. Accrual basis

3. Vincent Company records advertising expense when it places an ad in the local newspaper, even though the company will not pay for the advertising until a bill is received in a few weeks.
- A. Cash basis
- B. Accrual basis

4. Adams Corporation pays its telephone bill for the upcoming month and records telephone expense upon payment.
- A. Cash basis
- B. Accrual basis



Answer :

GinnyAnswer

Final answer:

Accrual vs. Cash basis accounting methods explained with examples.


Explanation:

Accrual basis accounting recognizes revenues and expenses when they are incurred, regardless of when cash is exchanged. On the other hand, cash basis accounting records transactions only when cash is received or paid out.

For example, Phillips Company not recording revenue until payment is received reflects the accrual basis, while Adams Corporation recording telephone expense upon payment showcases the cash basis.

Understanding these methods is crucial for accurate financial reporting and decision-making in organizations.


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