Accrual accounting requires frequent, ongoing changes in estimates.

Question

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Accrual accounting involves recognizing and recording revenues and expenses when they are earned or incurred, regardless of when the related cash transactions occur. This often requires estimates to be made regarding things like the useful life of assets, the collectibility of receivables, and the likelihood of future warranty claims or legal disputes. As new information becomes available or circumstances change, these estimates may need to be adjusted, leading to frequent changes in reported financial results.

Accrual Accounting Requires Frequent, Ongoing Changes in Estimates