Which of the following statements is true?
A)Accrual-based net income can be manipulated because it is based on estimates.
B)Cash flows are easily manipulated because they are based on estimates.
C)Accrual-based net income is not easily manipulated because valuation for such items as bad debts and inventory are precise and based on objectively verifiable information.
D)Cash flows are not easily manipulated because they are generated by internal transactions and do not involve external parties.

Question

Quizplus · Accepted Answer

Accrual-based net income can be manipulated because it relies on estimates and judgments regarding items such as revenue recognition, bad debt reserves, and inventory valuation. There is some subjectivity involved in these estimates, which makes it possible for management to manipulate the reported net income. Cash flows, on the other hand, are based on actual inflows and outflows of cash and are less subject to manipulation.

Which of the Following Statements Is True