The accrual accounting rate-of-return method has a significant weakness for use in making capital budgeting decisions because it does NOT track cash flows and it ignores the time value of money.

Question

Quizplus · Accepted Answer

The statement is true. The accrual accounting rate-of-return method only considers accounting income, which does not always correspond to actual cash flows. Additionally, it does not incorporate the concept of time value of money, which is crucial in evaluating the profitability of investment decisions over time.

The Accrual Accounting Rate-Of-Return Method Has a Significant Weakness for Use