Which statement is correct?
A) As long as a company consistently uses the cash basis of accounting generally accepted accounting principles 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 cash basis of accounting violates both the revenue recognition and expense recognition principles because under this method, revenue and expenses are only recorded when cash is received or paid out, regardless of when the actual sale or expense transaction occurred. This can result in misleading financial statements that do not accurately reflect the timing and amount of a company's revenues and expenses.

Which Statement Is Correct