Define cash basis vs accrual basis accounting and give one scenario where they differ.

• A. Cash basis records when cash changes hands; accrual records when earned or incurred
• B. Cash basis records when revenue is earned; accrual records when cash is received
• C. Cash basis vs accrual are identical methods
• D. Cash basis records assets when purchased; accrual records expenses when paid

Answer: (A)

The main idea is how timing of recognition differs between cash basis and accrual basis accounting. Cash basis records transactions when cash actually changes hands, so revenue is recognized when cash is received and expenses when cash is paid. Accrual basis records revenue when it is earned and expenses when they are incurred, regardless of cash movement.

A concrete example helps: if you perform a service in December but get paid in January, accrual will recognize the revenue in December, while cash basis will recognize it in January. Likewise, if you buy supplies on credit in December and pay in January, accrual recognizes the expense in December, but cash basis records the expense when you pay in January.

This aligns with the option that cash basis records when cash changes hands and accrual records when earned or incurred. The other statements mix up the timing or claim the methods are identical, which they are not.