Question

The main argument for proprietary funds being reported on the accrual basis is:

            A. Just like a for-profit business a proprietary fund has to properly match revenues with

                  expenses.

            B. Financial reporting should provide information that current revenues were sufficient

                  to cover expenses.

            C. Assisting users of the financial statements that all accomplishments are being met.

            D. All of the above.

Answer 1

Accrual concept is based on the premise that revenues & expenses should be recorded in the books of accounts, whenever you have earned income or incurred expenses. You might not have received your income or paid your expenses in cash but in order to depict the true picture of your yearly or half yearly operations, related period income and expenses have to be matched. On account of this concept, there result's sometimes a situation, where even though the business is profitable yet unable to pay their creditors or other payables as it does not have the cash. Liquidity crises.

Revenue is recognized when earned and payment is assured; expenses are recognized when incurred and the revenue associated with the expense is recognized.

Accruals improve the quality of information on financial statements by adding useful information about short-term credit extended to customers and upcoming liabilities owed to lenders.

So all tha statements are correct

So Option D is correct Answ