Which of the following is a drawback of using an accrual accounting system?
A) It greatly reduces the demand on bookkeeping.
B) It is only appropriate for cash-based businesses.
C) It may be misleading with respect to understanding a company's actual cash position.
D) It can be used to affect tax bills.
E) It can distort measure of the profitability of a business.

Question

Quizplus · Accepted Answer

Accrual accounting records income and expenses when they are earned or incurred, regardless of when the cash is actually received or paid. This can give a misleading picture of a company's cash flow, as it may appear more or less healthy than it actually is based on accruals rather than actual cash transactions.

Which of the Following Is a Drawback of Using an Accrual