Which of the following statements about cash basis accounting and accrual basis accounting is correct?
A)Net income is always larger under accrual basis accounting than cash basis accounting.
B)GAAP does not require the use of accrual basis accounting for external reporting.
C)Accrual basis accounting and cash basis accounting will always produce the same amount of net income.
D)Accrual basis accounting provides a better measure of operating performance than cash basis accounting.

Question

Quizplus · Accepted Answer

Accrual basis accounting reports revenues when they are earned and expenses when they are incurred,regardless of the timing of cash receipts or payments.Accrual basis accounting produces a better measure of the profits arising from the company's activities.It is required for external reporting under GAAP.Since cash basis accounting records revenues and expenses when cash is received and paid and accrual basis accounting reports revenues when they are earned and expenses when they are incurred,differences in net income reported under the two methods cannot be predicted.

Which of the Following Statements About Cash Basis Accounting and Accrual