Question

If your company uses accrual basis accounting, what do you need to pay special attention to? A. Money the company owes B. Money that is owed to the company C. Cash flow D. Revenue

Answer 1

Answer: C.) Cash flow

Explanation: Cashflow refers to the flow or movement of cash or cash related items in and out of a business as captured by a financial statement. Hence, cashflow captures both inflows and outflows. This is of relative importance in accrual method of accounting whereby an organization's revenue and expenses are captured or recorded once the transaction is recognized and not until payment is made as done in cash basis of accounting. Hence, the focus when an organization utilizes accrual method should not be based only on revenue earned or funds owed by the company or that which the company is being owed. Focus should be on the both the company's inflow and outflow.