Which of the following is true about accrual basis accounting and cash basis accounting?
A) Net Income is generally larger under accrual basis accounting than cash basis accounting.
B) GAAP does not require accrual basis accounting be used for external reports.
C) Accrual basis accounting and cash basis accounting will always produce the same results.
D) Accrual basis accounting provides a better measure of operating performance than does cash basis accounting

Question

Quizplus · Accepted Answer

Accrual basis accounting recognizes revenue and expenses when they are incurred, regardless of when payment is received or made. This provides a better measure of a company's operating performance because it matches revenue with the expenses necessary to generate it. Cash basis accounting, on the other hand, recognizes revenue and expenses only when payment is received or made, which can distort a company's true financial performance. Thus, D is the correct choice.

Which of the Following Is True About Accrual Basis Accounting