The Biggest Distinction Between Accruals and Deferrals Is

question 96

Multiple Choice

The biggest distinction between accruals and deferrals is

• A)one emphasizes conservatism while the other promotes aggressive accounting positions.
• B)how long a company must wait until the collection of cash occurs.
• C)with accruals, no record of the activity has been made prior to the adjustment process, and with deferrals, the activity has already been recorded in the accounting records, but the proper amount of revenue or expense has not been recognized.
• D)adjustments are necessary for accruals, whereas, adjustments are not necessary for deferrals.

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Definitions:

Variable Costing

An accounting method that includes only variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product cost calculations, excluding fixed manufacturing overhead.

Absorption Costing

A method of costing that includes all manufacturing costs - direct materials, labor, and both variable and fixed overhead - in the cost of a product.

Income Statement

A financial statement that shows a company's revenues and expenses over a specific period, ending with net profit or loss.

Variable Manufacturing Costs

Expenses that change in proportion to the amount of goods produced, including direct labor and raw materials.