Which statement is correct?
A) As long as a company consistently uses the cash basis of accounting, IFRS allow its use.
B) The use of the cash basis of accounting violates both the revenue recognition and expense recognition principles.
C) The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received.
D) As long as management is ethical, there are no problems with using the cash basis of accounting.

Question

Quizplus · Accepted Answer

The use of the cash basis accounting violates both the revenue recognition and expense recognition principles, which are fundamental principles of accounting. Under this method, revenue is only recognized when cash is received, which may result in an incorrect representation of the company's financial performance. Similarly, expenses are only recognized when cash is paid, leading to a potential overstatement or understatement of the company's expenses. Therefore, the use of cash basis accounting is not allowed under IFRS.

Which Statement Is Correct