If the deed requires books to be kept on accrual basis instead of cash basis, what does it mean?

Correct answer: Income and expenses will be recognized on accrual basis

The direct answer is option A: income and expenses will be recognized on an accrual basis. Accrual accounting records the economic event when income is earned or an expense is incurred, even if cash has not yet been received or paid. Step by step, goods or services may be supplied and income becomes earned; or an expense may become due; the entry is recorded at that time; later cash receipt or payment is recorded separately. Thus outstanding expenses, prepaid expenses, accrued income, and income receivable can be considered where relevant. Option A is correct because it states the meaning of accrual basis. Option B describes a cash-only approach and ignores credit transactions. Option C is opposite to accrual accounting because outstanding items are recorded, not omitted. Option D is wrong because capital introduced by a partner is a financing contribution, not an ordinary business expense. Exam cue: accrual means ‘earned or due’, not simply ‘cash received or paid’.