- 1 Marks
Question
Which of the following bases is used in preparation of financial statements?
A. Break up basis
B. Cash basis
C. Accrual basis
D. Modified cash basis
E. Commitment basis
Answer
Answer:
C. Accrual basis
Explanation:
The accrual basis of accounting is used in the preparation of financial statements because it provides a more accurate representation of a company’s financial position by recognizing revenues when earned and expenses when incurred, regardless of when the cash transactions happen. This method aligns with international accounting standards and provides a clearer view of the financial performance compared to the cash basis, which only records transactions when cash is exchanged.
- Tags: Accounting Bases, Accrual, Cash Basis, Financial Statements
- Level: Level 1
- Topic: Bases of Accounting: Accrual vs. Cash
- Series: MAY 2016
- Uploader: Joseph