The primary disadvantage of accrual accounting is that
A) it does not match revenues and expenses in the period in which they are incurred.
B) it does not appropriately measure accounting profit.
C) it does not recognize accounts receivable.
D) it does not adequately show the actual cash flows of the firm.

Question

Quizplus · Accepted Answer

Accrual accounting records revenue and expenses when they are incurred, regardless of when cash is actually received or paid out. This means that the reported financial position of a company may not reflect its actual cash flows. This can be misleading for investors and creditors who are interested in the company's liquidity and ability to pay its debts.

The Primary Disadvantage of Accrual Accounting Is That