Question

Which of the following statements about cash basis accounting is true? (Select the best answer.

A.The IRS allows all types of corporations to use it
B.It ensures the company always knows how much cash flow it has.
C.It is more complicated than accrual basis accounting.
D.It follows GAAP standards​

Answer 1

Answer: B.It ensures the company always knows how much cash flow it has.

Step-by-step explanation:

Cash basis accounting is an accounting method whereby the revenues and expenses are recognized as at the particular time that the cash is gotten or paid out. It should be noted that for the accrual accounting, the income is recognized when revenue is earned and also records the expenses when the liabilities are incurred not taking into cognisance of when the cash is either received or paid.

In cash basis accountant, the expense is debited and the cash is credited in the period that the bill is paid. Finally, it should be noted that the cash basis accounting is not also acceptable under generally Acceptable Accounting Principles (GAAP).