Which Statement Correctly Explains the Relationship Between Cash Flows, Accruals

question 34

Multiple Choice

Which statement correctly explains the relationship between cash flows, accruals and reported earnings?

• A)Cash flows are the best representation of a company's financial position and performance because of excessive accruals.
• B)The cash basis of accounting provides the best representation of a company's financial position and performance.
• C)The accrual basis of accounting provides the best representation of a company's financial position and performance.
• D)Accruals reduce earnings quality but are needed in financial reporting because GAAP is founded on professional judgment.

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Definitions:

Correlation Between Two Variables

A measure indicating the extent to which two variables change together, showing the strength and direction of their relationship.

Positive Correlation

A relationship between two variables where both either increase or decrease together, indicating a direct association.

Low Score

Low score typically refers to results that fall below an expected or average range in assessments or tests.

Mode

The value that appears most frequently in a data set or distribution.