GAAP states that publicly traded companies must use the cash

GAAP states that publicly traded companies

must use the cash basis of accounting

can use either the cash basis or the accrual basis as long as they are consistent from year to year and disclose the method in the notes that accompany their financial statements.

must use the accrual basis of accounting

		must use the cash basis of accounting
		can use either the cash basis or the accrual basis as long as they are consistent from year to year and disclose the method in the notes that accompany their financial statements.
		must use the accrual basis of accounting

Solution

GAAP states that publicly traded companies must use the accrual basis of accounting as the accrual basis of accounting is better suited to the defined objectives of the Financial Accounting Standards Board