Which of the following is not correct with respect to accrual accounting? Accrual accounting can produce large discrepancies between the firm’s reported profit performance and the amount of cash generated from operations. The principles that govern revenue and expense recognition under accrual accounting are designed to alleviate the mismatching problems that exist under cash-basis accounting. Reported accrual accounting net income for a period always provides an accurate picture of underlying economic performance. Accrual accounting does not decouple measured earnings from operating cash inflows and outflows.

The accrual basis concept is the most common concept used by business to record revenue and expenses. Under accrual basis accounting, the revenue and expenses are recognised and recorded as and when they are incurred. This concept provides the exact profits or losses for the period. There may be huge difference exist between cash collection during the period and profits earned during the period due to deferred revenue and expenditures. Hence, option d. Accrual accounting does not decouple measured earnings from operating cash inflows and outflows, is not correct about accrual basis accounting.

Answered: Which of the following is not correct…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Which of the following is not correct with respect to accrual accounting?

Accrual accounting can produce large discrepancies between the firm’s reported profit performance and the amount of cash generated from operations.
The principles that govern revenue and expense recognition under accrual accounting are designed to alleviate the mismatching problems that exist under cash-basis accounting.
Reported accrual accounting net income for a period always provides an accurate picture of underlying economic performance.
Accrual accounting does not decouple measured earnings from operating cash inflows and outflows.

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