Which of the following regarding accrual versus cash-basis accounting is true?
A) The FASB believes that the cash basis is appropriate for some smaller companies, especially those in the service industry.
B) The cash basis is less useful in predicting the timing and amounts of future cash flows of an enterprise.
C) Application of the cash basis results in an income statement reporting revenues and expenses.
D) The cash basis requires a complete set of double-entry records.

Question

Quizplus · Accepted Answer

Accrual basis accounting is more useful in predicting the timing and amounts of future cash flows of an enterprise. The FASB has stated that accrual basis accounting provides a better picture of a company's financial performance than cash basis accounting, and therefore is the preferred method. The cash basis does not result in a complete set of double-entry records, and it only reports cash transactions, not revenues and expenses. While the cash basis may be appropriate for smaller companies in some service industries, it is not generally acceptable for larger or more complex enterprises.

Which of the Following Regarding Accrual Versus Cash-Basis Accounting Is