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:

KOH

KOH, potassium hydroxide, is a strong alkali used in industry and as a reagent in the laboratory, especially in saponification reactions.

Lithium Hydroxide

A chemical compound with the formula LiOH, used primarily as a precursor in the production of lithium greases and batteries.

Strong Base

A substance that has a high capacity to accept protons (H+) and is completely or nearly completely ionized in aqueous solution.

Weak Base

A chemical species that partially accepts protons in solution, leading to an increase in the pH of the solution.