Vanguard Company uses accrual accounting. Indicate whether each of the following statements regarding Vanguard's accounting system is true or false.________ a) The recognition of accounting events and the realization of cash consequences must occur in different accounting periods.________ b) The cash consequence of a transaction sometimes precedes its accounting recognition.________ c) Expenses may either be matched to revenues they produce or to periods in which they are incurred.________ d) Vanguard may record accrual transactions, but may not record deferral transactions.________ e) Vanguard is not permitted to make cash sales.

Question

What will be an ideal response?

Answer 1

a) F b) T c) T d) F e) F

a) This is false. Recognizing accounting events (reporting them on the financial statements) and realizing cash consequences may, but not must, occur in different accounting periods.
b) This is true. Sometimes the cash consequence of a transaction occurs after its accounting recognition. An example is revenue earned on account.
c) This is true. The matching concept allows companies that use accrual accounting to match expenses with either revenues or accounting periods.
d) This is false. A company that uses accrual accounting records both accrual and deferral transactions.
e) This is false. Accrual basis companies may make cash sales and may pay cash expenses.