Accruals Challenge

The accrual basis of accounting recognizes revenues and expenses when they are earned or incurred, regardless of when cash is received or paid.  

• True

• False

Accrued expenses ensure that expenses are recorded in the same period in which the related revenues are recognized.  

• True

• False

An accrued expense is a type of expense that has been paid in advance.  

• True

• False

Salaries owed but not yet paid are an example of an accrued expense.  

• True

• False

When a company accrues an expense, it does not affect the company's cash flow until the payment is made.

• True

• False

A company must wait until it has received an invoice to record an accrued expense.

• True

• False

Accrued expenses must always be paid within the same accounting period they are recorded.

• True

• False

If a company does not record an accrual for an expense that was incurred in a period, it could misstate its net income for that period.

• True

• False

Accruals can help businesses prepare for future cash outflows by recording expenses that will be paid later.

• True

• False

Without accrual accounting, businesses could delay recognizing costs until they are paid, which could make it difficult to understand how well the business is performing.

• True

• False