A Small Business Owner Should Not Use the Cash Basis

question 45

Multiple Choice

A small business owner should not use the cash basis if ______.

• A) the business extends credit
• B) the business has high debt
• C) the business has low sales
• D) the business has increasing expenses

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Definitions:

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life, reflecting the decrease in value over time due to use and wear and tear.

Units-Of-Production

A depreciation method that allocates expense based on the actual usage or production levels of an asset.

Double-Declining-Balance

A method of accelerated depreciation that doubles the straight-line depreciation rate, reducing the asset's book value more quickly in the early years of its life.

Straight-Line Method

A method of calculating the depreciation of an asset where the asset's cost is evenly spread over its useful life.