Future Business Leaders of America (FBLA) Agribusiness Practice Test

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Enhance your FBLA Agribusiness knowledge with our comprehensive test. Dive into flashcards and multiple-choice questions, complete with hints and explanations, to ensure exam success. Prepare confidently for a bright future!

Practice this question and more.

Which accounting method credits income to the year it is received and deducts expenses in the year they are paid?

Accrual accounting
Cash accounting
Modified cash accounting
Expense accounting

The correct answer is: Cash accounting

The cash accounting method is characterized by recognizing income and expenses based on the actual cash transactions that occur. This means that income is credited in the year it is received, focusing on the real cash flow of the business. Similarly, expenses are deducted in the year they are paid, reflecting the business's immediate financial position based on cash in and cash out rather than on accounts receivable or payable. This approach is particularly straightforward and is often preferred by smaller businesses or individuals, as it simplifies tracking and understanding financial performance by directly correlating with actual cash available. Cash accounting provides a clear insight into liquidity, allowing businesses to easily see how much cash they have on hand at any given time.