Final answer:
Cash basis accounting is not permitted by GAAP because it may not accurately reflect a company's financial performance, instead, GAAP requires accrual basis accounting for a more accurate depiction of a company's financial health.
Step-by-step explanation:
The cash basis of accounting is not allowed by Generally Accepted Accounting Principles (GAAP) because it may distort a company's financial performance. Unlike the accrual basis, which GAAP endorses, cash basis accounting records revenues when cash is received and expenses when they are paid, regardless of when the revenues are actually earned or the expenses incurred. This can lead to significant distortions in financial statements, as it may not provide a true and fair view of a company's financial performance and position.