Under which type of accounting is the payment of a liability recorded when the cash is actually paid, rather than when the obligation is incurred?

• A. Accrual-basis accounting
• B. Cash-basis accounting
• C. Managerial accounting
• D. Tax accounting

Answer: (B)

Verified step by step guidance

1. Understand the key difference between accrual-basis accounting and cash-basis accounting. Accrual-basis accounting records transactions when they are incurred, regardless of when cash is exchanged, while cash-basis accounting records transactions only when cash is received or paid.
2. Identify the specific scenario described in the problem: the payment of a liability is recorded when cash is actually paid, not when the obligation is incurred.
3. Match this scenario to the definition of cash-basis accounting, as it aligns with the principle of recording transactions based on cash flow rather than the timing of the obligation.
4. Eliminate the other options: Accrual-basis accounting does not apply because it records obligations when incurred, not when paid. Managerial accounting focuses on internal decision-making and is not relevant to this scenario. Tax accounting pertains to tax reporting and compliance, which is also unrelated to the specific cash payment timing described.
5. Conclude that the correct type of accounting for this scenario is cash-basis accounting, as it directly corresponds to the principle of recording payments when cash is exchanged.