The accrual basis of accounting is often contrasted with the cash basis of accounting.Which of the following is/are true of the cash basis of accounting?
A)The cash basis is not subject to manipulation.
B)Most larger companies use the cash basis of accounting.
C)The cash basis of accounting provides a strong basis to determine the total assets of the company.
D)The cash basis provides an inferior picture of operating performance.
E)All of the above are true.

Question

Quizplus · Accepted Answer

The cash basis of accounting only records transactions when cash is received or paid out, which does not provide a complete picture of a company's operating performance. It can also be subject to manipulation, since timing of cash inflows and outflows can be manipulated. Most larger companies use the accrual basis of accounting, not the cash basis. The cash basis can provide a basis for determining cash and cash equivalents, but not total assets. Therefore, option D is the only true statement about the cash basis of accounting.

The Accrual Basis of Accounting Is Often Contrasted with the Cash