Question 14 of 20 next question value 200 points Which of th

Question 14 (of 20) next question value 2.00 points Which of the following statements about the cash basis of accounting is correct? \" can lead to a distorted view of the company\'s financial performance. O It is the only acceptable method for external reporting. O It reports revenues when earned and expenses when incurred. O It is used when cash is paid at the same time as the cost is incurred, but is not used when cash is paid before the expense is incurred References Multiple Cholce Difficulity 1 Easy Leaming Objective 03-02 Explain and apply the o searo

Solution

Answer:

Option 1 i.e. “It can lead to a distorted view of the Company’s financial performance” is Correct.

In Cash basis of Accounting, the transaction relating to Revenue and Expenses is recorded when the cash is received or paid. If the Services are performed at Current date but the Corresponding cash is received at a later date, the transaction will be recorded on the later date on which cash is received.

It doesn’t present the fair view of Company’s financial performance; as the revenue and expenses are recorded on the basis of cash Receipts and payments. The financial information prepared on the basis of Cash basis of accounting is not useful to any user.

While, the accrual basis of accounting records the Revenue and expenses as and when they are incurred. It represents the fair view of Company’s financial performance.