Suppose a company generally records revenues and expenses before receiving or making cash payments.Which of the following statements is then true?
A)If sales are falling,net losses could occur even though the company reports net cash inflows from operating activities.
B)If sales are rising,net profits could occur even though the company reports net cash outflows from operating activities.
C)Net income and cash flows will not always agree because revenues and expenses can be recorded in different time periods than their related cash flows.
D)All of the answers are acceptable.

Question

Quizplus · Accepted Answer

Each statement accurately reflects the implications of accrual accounting, where revenues and expenses are recorded when they are earned or incurred, not necessarily when cash is exchanged. This can lead to discrepancies between net income and cash flows, as well as situations where a company might report profits or losses that don't immediately align with its cash flow situation.

Suppose a Company Generally Records Revenues and Expenses Before Receiving