The accrual basis of accounting:
A) Is generally accepted for external reporting because it is more useful than cash basis for most business decisions.
B) Is flawed because it gives complete information about cash flows.
C) Recognizes revenues when received in cash.
D) Recognizes expenses when paid in cash.
E) Eliminates the need for adjusting entries at the end of each period.

Question

Quizplus · Accepted Answer

The accrual basis of accounting is generally accepted for external reporting because it provides a more accurate and reliable picture of a company's financial performance and position. This is because it recognizes revenues when they are earned (and not just when cash is received) and recognizes expenses when they are incurred (and not just when cash is paid out). This information is useful for most business decisions, which is why the accrual basis is preferred over the cash basis. The accrual basis does require adjusting entries at the end of each period to ensure that all revenues and expenses are properly recognized.

The Accrual Basis of Accounting