Question

Why is the accrual-based income statement superior to a cash-based income statements in measuring profitability? (Select all that apply.)
It reflects well the operating activities of the business and the best measure of a company’s profitability during the period.

It reports the expenses incurred in generating the revenues regardless of when the cash was paid.

It reports the revenues generated regardless of when the cash was collected.

Answer 1

The accrual-based income statement superior to a cash-based income statements in measuring profitability because It reports the expenses incurred in generating the revenues regardless of when the cash was paid.

What distinguishes the accrual basis of accounting from the cash basis of accounting?

When money is received or spent, it is recorded as revenue using the cash foundation of accounting. When using the accrual basis of accounting, revenues are recorded as they are earned and expenses as they are incurred.

What is an income statement with an accrual basis?

Accounting on an accrual system records revenue and corresponding costs as they are incurred, rather than when money is exchanged. Accordingly, businesses report revenue when it is earned rather than when it is received.

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