When using accrual basis accounting, financial statement preparers must
A) provide a supplementary note detailing that accrual accounting has been used.
B) state within a note that cash basis accounting is not acceptable under GAAP.
C) provide no supplementary note because the underlying assumption is that accrual basis of accounting is used on all financial statements.
D) none of the above.

Question

Quizplus · Accepted Answer

The accrual basis of accounting is a fundamental principle of Generally Accepted Accounting Principles (GAAP), so it is assumed that financial statements prepared under GAAP will use this basis of accounting. Therefore, there is no need for a supplementary note explaining the use of accrual basis accounting. Option A is incorrect because a supplementary note is not required. Option B is incorrect because cash basis accounting is not acceptable under GAAP, so it does not need to be addressed in a note.

When Using Accrual Basis Accounting, Financial Statement Preparers Must