The accrual basis of accounting:
A) Recognizes expenses when paid in cash.
B) Is generally accepted for external reporting because it is more useful than cash basis for most business decisions.
C) Recognizes revenues when received in cash.
D) Is flawed because it gives complete information about cash flows.
E) Eliminates the need for adjusting entries at the end of each period.

Question

Quizplus · Accepted Answer

The accrual basis of accounting is generally accepted for external reporting because it provides a more accurate representation of a company's financial position and performance. It recognizes revenues when earned, regardless of when payment is received, and expenses when incurred, regardless of when payment is made. This allows for better matching of revenues and expenses and provides a more useful basis for most business decisions.

The Accrual Basis of Accounting