Simon and Marie received a statement reporting that they paid $6,000 in mortgage interest during the past year. If they are in a 25 percent tax bracket, this deduction would reduce their taxable income by .

The answer is D : recognizes expenses when they are paid.

The cash basis of Accounting is not allowed during the preparation of income statement, balance sheet and the statement of share holder equity yet it is allowed during the preparation of cash flow statement.

Under this, revenue is recognised only when it is received in cash or cash equivalents and not when it is realized.