Under accrual accounting, expenses are recorded and reported only when they are:

• A. Incurred in generating revenues in the period, regardless of when cash is paid
• B. Paid in cash, regardless of when they are incurred
• C. Approved by management for payment, regardless of when they are incurred
• D. Billed by the supplier (invoiced), regardless of when they are incurred or paid

Answer: (A)

Verified step by step guidance

1. Understand the principle of accrual accounting, which states that expenses should be recognized when they are incurred, not necessarily when cash is paid.
2. Recall that an expense is incurred when the company has received goods or services that contribute to generating revenue in the current accounting period.
3. Recognize that the timing of cash payment does not affect the recording of expenses under accrual accounting; expenses are matched with the revenues they help generate.
4. Eliminate options that focus on cash payment, management approval, or invoicing as the primary basis for expense recognition, since these do not align with the accrual concept.
5. Conclude that the correct approach is to record expenses in the period they are incurred to generate revenues, regardless of when cash is paid.