Question Tag: Accrual

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  • 1 Marks

FA – May 2016 – L1 – SA – Q1 – Bases of Accounting: Accrual vs. Cash

A question regarding the bases used in preparing financial statements.

Which of the following bases is used in preparation of financial statements?
A. Break up basis
B. Cash basis
C. Accrual basis
D. Modified cash basis
E. Commitment basis

Answer:
C. Accrual basis

Explanation:
The accrual basis of accounting is used in the preparation of financial statements because it provides a more accurate representation of a company’s financial position by recognizing revenues when earned and expenses when incurred, regardless of when the cash transactions happen. This method aligns with international accounting standards and provides a clearer view of the financial performance compared to the cash basis, which only records transactions when cash is exchanged.
  • 1 Marks

FA – Mar/July 2020 – L1 – SA – Q7 – Accounting Concepts (e.g., Going Concern, Accruals, Materiality)

Accounting concept that gives special treatment to significant items

Which of the following concepts requires the accountant to give special accounting treatment to items of significant value?
A. Accrual
B. Going concern
C. Materiality
D. Entity
E. Dual aspect

C. Materiality

Explanation:
The materiality concept requires accountants to apply special accounting treatment to items that are significant enough to influence the decision of users of financial statements. Items deemed immaterial can be treated less rigorously.

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