Which of the following statements is true?
A) The finance manager uses the framework of the income statement to find the operating income of the company (an accounting measure), which is also the true cash flow from operations.
B) In accrual-based accounting, revenue is recorded at the time of sale if the revenue has been received in cash.
C) Three fundamental issues separate net income and cash flow: accrual accounting, noncash expense items, and interest expense.
D) Generally accepting accounting principles (GAAP) in the United States do not allow the use of accrual accounting to record revenue.

Question

Quizplus · Accepted Answer

C is the only statement that is true. Accrual accounting is the method of recognizing revenue upon performance, not upon the receipt of cash, which is a fundamental issue that separates net income and cash flow. Noncash expense items, such as depreciation, are also a factor that influences the distinction between net income and cash flow. Interest expense is the final factor that distinguishes net income from cash flow, as it is a non-operational expense that reduces net income but does not impact cash flow. A, B, and D are all incorrect statements.

Which of the Following Statements Is True