Question

Compared to the accrual basis of accounting, the cash basis of accounting produces a higher amount of income by the net decrease during the accounting period of: Accounts Receivable Accrued Liabilities a. Yes No b. No Yes c. Yes Yes d. No No Multiple Choice

Answer 1

Answer:

A) Yes No

• Accounts Receivable ⇒ yes
• Accrued Liabilities ⇒ no

Explanation:

A net decrease in accounts receivable means that the company received more cash from its customers (higher cash positions), so income will be higher for businesses using cash basis than accrual basis.

On the other hand, if accrued liabilities decrease, it means that the company paid more debts, reducing its cash positions. If the company uses cash basis accounting, their income will decrease since the cash position decreases.