In what scenario would cash-based accounting recognize revenue?

• A. When a sale is made
• B. When cash is received
• C. When services are delivered
• D. When goods are shipped

Answer: (B)

In cash-based accounting, revenue is recognized when cash is received. This approach focuses on the actual inflow of cash rather than the timing of the transaction itself.

For example, even if a company sells a product or provides a service, it will not recognize that revenue until payment is received from the customer. This principle contrasts with accrual accounting, where revenue is recognized when a sale is made or a service is delivered, regardless of when the cash is received.

By using cash-based accounting, businesses can avoid issues related to accounts receivable and can provide a straightforward view of cash flow. Therefore, recognizing revenue upon receipt of cash ensures that the reported earnings reflect the company's actual cash position at any given time.