The Accrual Basis of Accounting Is Often Contrasted with the Cash

question 80

Multiple Choice

The accrual basis of accounting is often contrasted with the cash basis of accounting.Which of the following is/are true of the cash basis of accounting?

• A)The cash basis is not subject to manipulation.
• B)Most larger companies use the cash basis of accounting.
• C)The cash basis of accounting provides a strong basis to determine the total assets of the company.
• D)The cash basis provides an inferior picture of operating performance.
• E)All of the above are true.

---

Definitions:

Efficiency Loss

Reductions in combined consumer and producer surplus caused by an underallocation or overallocation of resources to the production of a good or service. Also called deadweight loss.

Deadweight Loss

A loss of economic efficiency that occurs when the equilibrium for a good or service is not achieved or is not achievable.

Actual Production

The quantity of goods or services produced by a firm, industry, or economy within a specific period, factual and not estimated.