Consider the following: While accrual accounting information is imperfect, ignoring it and making cash flows the basis of all analysis and business decisions is like throwing the baby out with the bath water. Required: a. Do you agree or disagree with this statement? Explain. b. How does accrual accounting provide superior information to cash flows? c. What are the imperfections of accrual accounting? Is it possible for accrual accounting to depict economic reality? Explain. d. What is the prudent approach to analysis using accrual accounting information?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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PROBLEM 2-16
Consider the following: While accrual accounting information is imperfect, ignoring it and making
cash flows the basis of all analysis and business decisions is like throwing the baby out with the bath
water.
Relevance of Accruals
Required:
a. Do you agree or disagree with this statement? Explain.
b. How does accrual accounting provide superior information to cash flows?
c. What are the imperfections of accrual accounting? Is it possible for accrual accounting to depict economic
reality? Explain.
d. What is the prudent approach to analysis using accrual accounting information?
Transcribed Image Text:PROBLEM 2-16 Consider the following: While accrual accounting information is imperfect, ignoring it and making cash flows the basis of all analysis and business decisions is like throwing the baby out with the bath water. Relevance of Accruals Required: a. Do you agree or disagree with this statement? Explain. b. How does accrual accounting provide superior information to cash flows? c. What are the imperfections of accrual accounting? Is it possible for accrual accounting to depict economic reality? Explain. d. What is the prudent approach to analysis using accrual accounting information?
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