Accrual accounting can produce large discrepancies between the firm's reported profit performance and the amount of cash generated from operations.

Question

Quizplus · Accepted Answer

Accrual accounting recognizes revenue and expenses when earned or incurred, regardless of when the cash is received or paid. This can result in reported profits that do not reflect the actual cash flow of the business. For example, a company may recognize revenue for a sale that has not yet been paid for, or it may recognize expenses for a cost that has not yet been paid. This can create a discrepancy between reported profits and the cash generated from operations.

Accrual Accounting Can Produce Large Discrepancies Between the Firm's Reported