The accrual basis of accounting is often contrasted with the cash basis of accounting.Which of the following is 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)The cash basis provides an superior picture of operating performance

Question

Quizplus · Accepted Answer

The cash basis of accounting only recognizes revenues and expenses when cash is received or paid out, respectively. This can result in a distorted picture of a company's operating performance because it does not consider non-cash transactions such as accounts receivable and accounts payable. Therefore, the cash basis provides an inferior picture of operating performance compared to the accrual basis.

The Accrual Basis of Accounting Is Often Contrasted with the Cash