Which statement concerning accrual accounting is true?
A) Profit is the excess of cash inflows from income over cash outflows for expenses.
B) Income from sales is recognised in the period when the cheque is cashed.
C) For most businesses the cash approach gives a better measure of economic performance than does the accrual approach.
D) Income is recognised in the period when the flow of economic benefits can be reliably measured.

Question

Quizplus · Accepted Answer

Accrual accounting recognises income in the period when the flow of economic benefits can be reliably measured, regardless of when the cash is received. This provides a more accurate picture of a company's financial performance than the cash method, which only recognises income when it is received and expenses when they are paid. A is incorrect because profit is based on accrual accounting, not cash flows. B is incorrect because income is recognised in the period when it is earned, not when the cheque is cashed. C is incorrect because accrual accounting provides a more accurate measure of economic performance than cash accounting.

Which Statement Concerning Accrual Accounting Is True