Under cash-basis accounting, when are expenses recorded?

Under cash-basis accounting, when are expenses recorded?

• A. When incurred
• B. When billed
• C. When paid
• D. When earned

Answer: (C)

Under cash-basis accounting, expenses are recognized when cash actually leaves the business. This means you record the expense at the moment you make the payment, not when the bill arrives, when the service is incurred, or when you earn revenue. For example, paying a utility bill on its due date records the expense on that payment date. If you receive a bill but don’t pay yet, there’s no expense recorded until you make the payment. This approach focuses on real cash flow, unlike accrual accounting, which records expenses when they’re incurred or when the related obligation is created.

Under cash-basis accounting, expenses are recognized when cash actually leaves the business. This means you record the expense at the moment you make the payment, not when the bill arrives, when the service is incurred, or when you earn revenue. For example, paying a utility bill on its due date records the expense on that payment date. If you receive a bill but don’t pay yet, there’s no expense recorded until you make the payment. This approach focuses on real cash flow, unlike accrual accounting, which records expenses when they’re incurred or when the related obligation is created.