Which of the Following Regarding Accrual Versus Cash-Basis Accounting Is

question 41

Multiple Choice

Which of the following regarding accrual versus cash-basis accounting is true?

• A) The FASB believes that the cash basis is appropriate for some smaller companies,especially those in the service industry.
• B) The cash basis is less useful in predicting the timing and amounts of future cash flows of an enterprise.
• C) Application of the cash basis results in an income statement reporting only revenues.
• D) The cash basis requires a complete set of double-entry records.

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Definitions:

Fixed Expenses

are costs that do not fluctuate with the level of production or sales, such as rent, salaries, and insurance premiums.

Contribution Margin

The amount of revenue remaining after deducting variable costs, used to cover fixed costs and generate profit.

Variable Expenses

Costs that change in proportion to the level of production or sales activity.

Contribution Margin Ratio

A financial measure that gauges the proportion of sales revenue that exceeds variable costs, indicating how much revenue contributes towards covering fixed expenses and generating profit.