Which statement is correct?
A) As long as a company consistently uses the cash basis of accounting, generally accepted accounting principles allow its use.
B) The use of the cash basis of accounting violates both the revenue recognition and matching principles.
C) The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received.
D) As long as management is ethical, there are no problems with using the cash basis of accounting.

Question

Quizplus · Accepted Answer

The cash basis of accounting violates both the revenue recognition and matching principles because revenue is recognized when cash is received and expenses are recognized when cash is paid, regardless of when the revenue was earned or when the expenses were incurred. This can lead to inaccuracies and distortions in financial reporting. Generally accepted accounting principles require accrual basis accounting, which recognizes revenue and expenses when they are earned or incurred, not when cash is received or paid.

Which Statement Is Correct