An auditor is reporting on cash basis financial statements.These statements are best referred to in his opinion by which of the following descriptions?
A)Financial position and results of operation arising from cash transactions.
B)Assets and liabilities arising from cash transactions,and revenue collected and expenses paid.
C)Balance sheet and income statement resulting from cash transactions.
D)Cash balance sheet and the source and application of funds.

Question

Quizplus · Accepted Answer

Choice B is correct because it accurately describes the elements of financial statements prepared on a cash basis. In cash basis accounting, the focus is on tracking the cash that comes into and goes out of the business. Therefore, the financial statements would reflect assets and liabilities that arise directly from cash transactions, as well as revenue collected (cash inflows) and expenses paid (cash outflows). Choices A, C, and D do not fully capture the essence of cash basis financial statements as described in B.

An Auditor Is Reporting on Cash Basis Financial Statements