Explain cash basis accounting and accrual accounting and when to use each.

• A. Cash basis records revenue and expenses when cash is received or paid; accrual records them when earned or incurred; accrual provides a more accurate profitability view, while cash basis helps with immediate cash flow management.
• B. Cash basis records revenue when earned; accrual records them when cash is received.
• C. Accrual accounting is only used by large corporations and is never appropriate for a salon.
• D. Cash basis records everything in the quarter.

Answer: (A)