Which Statement Concerning Accrual Accounting Is True

question 16

Multiple Choice

Which statement concerning accrual accounting is true?

• A) Profit is the excess of cash inflows from income over cash outflows for expenses.
• B) Income from sales is recognised in the period when the cheque is cashed.
• C) For most businesses the cash approach gives a better measure of economic performance than does the accrual approach.
• D) Income is recognised in the period when the flow of economic benefits can be reliably measured.

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Definitions:

Marginal Cost

The additional cost incurred from producing one more unit of a good or service.

Average Total Cost

A firm’s total cost divided by output (the quantity of product produced); equal to average fixed cost plus average variable cost.

Economies of Scale

Cost advantages that a business obtains due to expansion, leading to a reduction in the average cost per unit through increased production.

Diseconomies of Scale

The situation in which a business grows to a point where the costs per unit increase, opposed to saving costs, often due to managerial inefficiencies or complexity.