Recognition of Income and Expense
In accounting, revenue and expense can be recognized through two methods:
- Accrual method: Income is recognized as and when it is billed, even if cash has not been received yet.
- Cash basis accounting: Income and expenses are recognized when cash is actually received or paid, respectively.
In the income statement, the accrual method is followed, which means that revenue and expense are recorded as they are earned and incurred, respectively.
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