Which statement about a TV purchase paid with a credit card illustrates cash-based vs accrual accounting?

Which statement about a TV purchase paid with a credit card illustrates cash-based vs accrual accounting?

• A. In cash-based accounting, revenue appears when the card is charged and funds are deposited; in accrual, revenue appears immediately and goes to Accounts Receivable until cash is deposited
• B. In cash-based accounting, revenue appears immediately; in accrual, revenue never appears
• C. In cash-based accounting, revenue and cash appear only after the customer pays for the TV
• D. In cash-based accounting, revenue never appears; in accrual, revenue appears only when cash is deposited

Answer: (C)

Understanding how revenue timing differs between cash-based and accrual accounting is key here. With a credit card sale, you don’t receive cash immediately—the money comes from the card issuer later. In cash-based accounting, you record revenue only when cash actually arrives, so revenue and cash both show up after the customer pays. In accrual accounting, you record the sale when it happens, with a receivable (Accounts Receivable) until the payment is collected, so revenue is recognized at the time of sale even if cash hasn’t yet been received. The statement that revenue and cash appear only after the customer pays reflects the cash-based timing, which is why it’s the best answer. The other options misstate when revenue is recognized under either method.

Understanding how revenue timing differs between cash-based and accrual accounting is key here. With a credit card sale, you don’t receive cash immediately—the money comes from the card issuer later. In cash-based accounting, you record revenue only when cash actually arrives, so revenue and cash both show up after the customer pays. In accrual accounting, you record the sale when it happens, with a receivable (Accounts Receivable) until the payment is collected, so revenue is recognized at the time of sale even if cash hasn’t yet been received. The statement that revenue and cash appear only after the customer pays reflects the cash-based timing, which is why it’s the best answer. The other options misstate when revenue is recognized under either method.