Accrual accounting is often based upon subjective judgments that can introduce measurement errors and uncertainty into reported earnings.

Question

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Accrual accounting often involves estimating future events, such as the collectability of accounts receivable or the useful life of long-term assets. These estimates are subject to management's judgment and can be influenced by various factors, such as economic conditions and industry trends. As a result, there is a risk of measurement errors and uncertainty in reported earnings.

Accrual Accounting Is Often Based Upon Subjective Judgments That Can