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.

Identify the standards and regulatory bodies governing the practice of accounting.

Understand the role of accounting in evaluating a company’s financial health.

Understand different corporate dividend policies and their implications.

Calculate dividends and recognize effects of dividend policies on company metrics.

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Definitions:

For-Profit Corporations

Businesses that aim to generate profit for their owners and shareholders.

Government Agencies

Organizations established by a government to carry out specific functions or provide services on behalf of the government.

Volunteer Workers

Individuals who freely offer their time and skills to undertake tasks or provide services for charitable, nonprofit, or community groups without monetary compensation.

Narrow Mission

A clearly defined, focused purpose or objective of an organization, which directs its activities and priorities in a specific, targeted manner.