THE ACURAL BASIS OF ACCOUNTING GENERALLY PROVIDES A MORE COMPLETE PICTURE OF ECONOMIC REALITY THAN THE...

THE ACURAL BASIS OF ACCOUNTING GENERALLY PROVIDES A MORE COMPLETE PICTURE OF ECONOMIC REALITY THAN THE CASH BASIS OF ACCOUNTING TRUE OR FALSE?

Expert Solution

It is true that accrual basis of accounting provides a more complete picture and economic reality

Accrual accounting is an accounting method that measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur. The general idea is that economic events are recognized by matching revenues to expenses (the matching principle) at the time in which the transaction occurs rather than when payment is made (or received). This method allows the current cash inflows/outflows to be combined with future expected cash inflows/outflows to give a more accurate picture of a company's current financial condition.

Under accrual accounting, firms have an immediate feedback of their expected cash inflows and outflows, which makes it easier for businesses to better manage their current resources and plan effectively for the future.

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