Accruals are revenues or expenses recognized before cash is received or paid.

• A. True
• B. False
• C. Only relate to cash receipts
• D. Only relate to expenses

Answer: (A)

Accruals are about recording revenue when it is earned and expenses when they are incurred, not when cash actually moves. This means you recognize an amount as revenue before cash is received (accrued revenue) and as an expense before cash is paid (accrued expense). At the period end, adjusting entries set up receivables for earned but uncollected revenue and payables for incurred but unpaid expenses. For example, a service performed in the period but billed next period creates revenue now and a receivable; wages earned in the period but paid next period create an expense now and a payable. This aligns with the matching principle, ensuring income and costs are recorded in the correct period, regardless of cash flow timing.