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Accounting Principles: Mastery Test

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What does the accruals principle state?

The accruals principle states that companies should recognize revenue in the financial statement when they __________ and they should recognize expenses when they __________ those expenses.

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Answer :

GinnyAnswer

Final answer:

Accruals principle in accounting emphasizes recognizing revenue when earned and expenses when incurred, providing a more accurate financial picture.


Explanation:

Accruals principle states that companies should recognize revenue in the financial statement when they earn it and recognize expenses when they incur them. Unlike cash basis accounting, where transactions are recorded only when cash changes hands, accrual accounting records transactions when they occur, regardless of cash flow. This method provides a more accurate representation of a company's financial position by matching revenues with expenses.


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