BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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cash flows are considered less important.
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it provides a better indication of ability to generate cash flows than the cash basis.
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it recognizes revenues when cash is received and expenses when cash is paid.
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None of these answers are correct
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Detailed explanation-1: -Answer and Explanation: Accrual accounting is used because it recognizes revenues when cash is received and expenses when cash is paid.
Detailed explanation-2: -Unlike cash accounting, accrual basis accounting lets you see a full picture of your business’s finances. This is because you track receivables and payables rather than just money that has been deposited in or deducted from your accounts. It provides a more accurate picture than cash basis accounting.
Detailed explanation-3: -Accrual accounting gives a better indication of business performance because it shows when income and expenses occurred. If you want to see if a particular month was profitable, accrual will tell you. Some businesses like to also use cash basis accounting for certain tax purposes, and to keep tabs on their cash flow.
Detailed explanation-4: -Accrual basis accounting creates a more accurate view of a company’s financial status by recording revenue when it is earned and expenses when they are incurred-effectively matching revenue with expense.
Detailed explanation-5: -Increasing accrued expenses has a positive effect on cash flow, but it does not directly increase cash flow. Given the same amount of cash receipts during an accounting period, the less the cash payments as a result of the increased expense accruals, the more the amount of cash generated from operations.