The cash approach to profit measurement will not give a reliable profit figure for an entity that conducts a significant portion of its business:
A) overseas.
B) on credit.
C) with an overdraft.
D) with subsidiaries.

Question

Quizplus · Accepted Answer

The cash approach only records revenue when cash is received and expenses when cash is paid out. It does not take into account revenue from credit sales which are recorded when the sale is made, not when the cash is received. Therefore, if a significant portion of a business's sales are on credit, the cash approach will not give an accurate reflection of the actual profit.

The Cash Approach to Profit Measurement Will Not Give a Reliable