Florida General Contractor Practice Exam

A construction company recognizes income only on the portion of money received or charges that are billed for completed work. What is this method called?

1. Cash Basis Accounting

2. Accrual Accounting

3. Deferral Accounting

4. Completion Accounting

The correct answer is: Cash Basis Accounting

The method of recognizing income only on the portion of money received or charges for completed work is known as Cash Basis Accounting. In this accounting method, revenue is recognized when cash is actually received, rather than when it is earned through the completion of work or services. This means that if a construction company only acknowledges income when clients pay for the work done, it aligns with the principles of cash basis accounting. By using this method, businesses can effectively manage their cash flow, as it allows them to track only the actual funds available at any given time. This approach is particularly common among smaller businesses and those that deal with cash transactions frequently. It contrasts with other methods like Accrual Accounting, which recognizes income when it is earned, regardless of when cash is received.