The Accrual Basis of Accounting

question 138

Multiple Choice

The accrual basis of accounting:

• A) Is generally accepted for external reporting because it is more useful than cash basis for most business decisions.
• B) Is flawed because it gives complete information about cash flows.
• C) Recognizes revenues when received in cash.
• D) Recognizes expenses when paid in cash.
• E) Eliminates the need for adjusting entries at the end of each period.

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Definitions:

Good Faith Purchaser

An individual who buys property without knowledge of any existing claims or defects against it, thereby acquiring legal rights to the property.

Minor

A person under the legal age of majority, often under 18, thus restricted in certain legal capacities.

Ratification

The formal validation of a proposed contract, amendment, or treaty, often requiring official approval to become legally effective.

Ratify

To formally approve or confirm an agreement or action, making it officially valid.