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A gardener mows a client's lawn one afternoon and leaves an invoice for the agreed $50, which the client will pay later. On the accrual basis, what has occurred that afternoon?
ANo revenue arises until the client settles the invoice in cash
BRevenue of $50 has been earned even though no cash has been received
CAn expense of $50 is incurred but no revenue is recognised yet
DA liability of $50 is recorded because cash is owed to the client
Answer & Solution
Correct answer: B. Revenue of $50 has been earned even though no cash has been received
1. Under accrual accounting, revenue is earned when the work is completed.
2. The job was finished, so $50 of revenue is earned that afternoon.
3. Cash not yet received does not delay recognition, ruling out A.
4. The gardener provided service, so no expense (C) and no liability to the client (D) arises.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §2.1 "Accrual Basis of Accounting", p.53_