Which of the following is a disadvantage of using a cash-based accounting system?
A) It may be misleading with respect to understanding a company's actual cash position.
B) It can distort measure of the profitability of a business.
C) It needs greater bookkeeping requirements.
D) It is a more sophisticated approach to accounting.
E) It provides an accurate indication of the profitability of a business.

Question

Quizplus · Accepted Answer

A cash-based accounting system only records transactions when cash is received or paid out, which may not accurately reflect the profitability of a business. This is especially true if the business has significant amounts of accounts receivable or accounts payable. As a result, this can distort measures of the profitability of a business.

Which of the Following Is a Disadvantage of Using a Cash-Based