Why Would the Accrual Basis of Accounting Be Preferable to the Cash

question 17

Multiple Choice

Why would the accrual basis of accounting be preferable to the cash basis?

• A)it is easier to keep records on the accrual basis than on the cash basis
• B)it measures performance by comparing inflows and outflows of cash
• C)it ignores the effect of the consumption of assets on the cost of doing business
• D)it measures performance by comparing revenues earned with expenses incurred.

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Definitions:

Cost of Goods Sold

The total cost of manufacturing and delivering a product or service to consumers.

Inventory

The raw materials, work-in-process products, and finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale.

Cost of Goods Sold

The costs directly associated with the manufacturing of goods a company sells, encompassing both the price of materials and the wages for labor.

Inventory

The total amount of goods or materials held in stock by a business, intended for sale or production.