Which of the following statements about accruals and cash flows is true?
A) All cash flows are value relevant.
B) Cash flows cannot be manipulated.
C) Cash flows are more reliable than accruals.
D) All accrual accounting adjustments are value irrelevant.

Question

Quizplus · Accepted Answer

Cash flows are considered more reliable than accruals because they represent the actual inflows and outflows of cash, while accruals are based on estimates and assumptions. However, it is also important to consider accruals when analyzing financial statements because they provide insight into future cash flows and the company's earnings quality. Option A is incorrect because not all cash flows are value relevant; some may be insignificant or non-recurring. Option B is incorrect because cash flows can be manipulated through irregular or fraudulent activities. Option D is incorrect because some accrual accounting adjustments, such as allowance for bad debts or inventory write-downs, can have a significant impact on a company's financial performance and future cash flows.

Which of the Following Statements About Accruals and Cash Flows