Accrual basis of accounting

Steps:

• Identify the scenario: Work is completed but invoice not sent, requiring recording in books.
• Recall core concepts: Accrual recognizes transactions when they occur, not when cash changes hands.
• Link to options: Assume 1 is accrual, 3 is matching principle (revenue matched to period earned).
• Select combination: 1 and 3 apply as revenue is accrued and matched to work period.

Not enough information to identify concepts 1, 2, and 3 precisely.

Why B is correct:

• B (1 and 3) aligns with accrual (1: record earned revenue) and matching (3: align revenue with completion period), per GAAP accrual rules.

Why the others are wrong:

• A: Includes 2 (likely cash basis or unrelated), which delays recording until invoiced.
• C: 2 only ignores accrual recognition of completed work.
• D: Excludes 1 (accrual), focusing wrongly on 2 and 3 without earned revenue entry.

Final answer: B