The accrual basis of accounting
A) Is generally accepted for external reporting because it gives more useful information
B) Is not acceptable because it gives incomplete information about cash flows
C) Recognizes revenues when received
D) Recognizes expenses when paid
E) Eliminates the need for adjusting entries

Question

Quizplus · Accepted Answer

The accrual basis of accounting is generally accepted for external reporting because it provides more useful information about a company's financial performance and position. This method recognizes revenues when earned (regardless of when they are received) and expenses when incurred (regardless of when they are paid), giving a more accurate portrayal of a company's financial activity. Adjusting entries are necessary to account for the timing differences between when revenue and expenses are recognized and when cash is actually received or paid out.

The Accrual Basis of Accounting