Final answer:
The accrual basis of accounting is likely the method used by a large business with many outstanding loans and customer charge accounts, as it records financial events based on incurred expenses and earned revenues, not just cash flow.
Step-by-step explanation:
A large business with a significant number of outstanding loans and customer charge accounts would most likely use the accrual basis of accounting. This accounting method records revenues and expenses when they are incurred, regardless of when cash is exchanged, which provides a more accurate financial picture for businesses with complex financial transactions. It is especially useful for larger businesses that need to manage multiple financial activities, such as taking out or servicing loans, and offering credit to customers.
In contrast, smaller firms might use cash basis accounting, which records transactions only when cash changes hands. The accrual method, however, is more suitable for large businesses because it matches related expenses and revenues in the same period, which helps in analyzing the company's financial performance more accurately over time and is in accordance with Generally Accepted Accounting Principles (GAAP).
Banks and bond investors expect detailed financial information that reflects the real financial status of a company. The accrual method provides this by accounting for all commitments and obligations, such as loan interest and customer credit, even if the actual cash has not been paid or received yet.