Accruals for revenues and expenses: which statements describe their effects on accounts?

• A. Accrued revenues increase assets and revenues
• B. Accrued revenues increase liabilities and revenues
• C. Accrued expenses increase assets and revenues
• D. Accrued expenses decrease assets

Answer: (A)

Under accrual accounting, revenue is recognized when earned, not when cash is received, and expenses are recognized when incurred, not when paid. When revenue is earned but not yet billed, you increase an asset (accounts receivable) and increase revenue. That dual effect—raising both assets and revenues—is exactly what the statement describes, so it matches how accruals work.

For comparison, accrued revenues do not affect liabilities, so a claim that they increase liabilities isn’t correct. Accrued expenses, on the other hand, are recognized by increasing a liability and increasing the expense, not by increasing assets or revenues, so those descriptions don’t fit either.