The Primary Disadvantage of Accrual Accounting Is That

question 60

Multiple Choice

The primary disadvantage of accrual accounting is that

• A) it does not match revenues and expenses in the period in which they are incurred.
• B) it does not appropriately measure accounting profit.
• C) it does not recognize accounts receivable.
• D) it does not adequately show the actual cash flows of the firm.

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Definitions:

Fair Value

The cost at which an asset could be sold or a liability could be resolved in a structured exchange among participants in the market as of the evaluation date.

Common Shares

are equity securities that represent ownership in a corporation, entitling holders to a share of the corporation's profits through dividends and/or capital appreciation.

Consolidated Financial Statements

Financial statements that show the financial position and results of operations for a parent company and its subsidiaries as one economic entity.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or within a business's normal operating cycle if longer.