Which principle governs the timing of revenue and expense recognition based on accrual accounting?

• A. Materiality
• B. Accrual Principle
• C. Going Concern
• D. Conservatism

Answer: (B)

Under accrual accounting, the timing of recording revenues and expenses is determined by recognizing them when the economic activity occurs, not when cash is received or paid. This is guided by the accrual basis of accounting, which is supported by the revenue recognition principle (revenue is recognized when earned) and the matching principle (expenses associated with those revenues are recognized in the same period). The result is that financial statements reflect the period in which the underlying transactions take place.

Materiality focuses on whether an item is significant enough to affect decisions, going concern concerns the assumption the business will continue operating, and conservatism guides cautious measurement practices. None of these determine when revenues or expenses are recognized under accrual accounting.