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LOS a: Contrast accrual accounting and cash accounting and explain why accounting discretion exists in an accrual accounting system.
Q1. Consider the following statements:
Statement 1: Compared to the cash basis of accounting, the accrual basis of accounting provides more timely information about future cash flows.
Statement 2: Compared to the cash basis of accounting, the accrual basis requires more use of discretion than the cash basis.
Are these statements CORRECT?
A) No, because it is actually the cash basis of accounting that provides more timely and relevant information to users about future cash flows.
B) No, because it is actually the cash basis of accounting that results in more difficulty in properly assigning revenues and expenses to the appropriate periods.
C) Yes.
Q2. Management is considering the need to record a number of transactions on its financial statements. Which of the following items
is least likely to involve the use of subjective measurement estimates by management?
A) Use of FIFO (first in-first out) to cost inventories.
B) Use of criteria to determine treatment as an extraordinary item.
C) Use of straight-line depreciation method to depreciate tangible assets.
Q3. A manufacturing firm purchases equipment for use in its operations. With regards to recording the purchase using the cash
basis versus the accrual basis of accounting, which of the following statements is most appropriate?
A) With the cash basis, revenues and expenses relating to the equipment are generally recognized in the same period.
B) With the accrual basis, the cost of the equipment is allocated to the cash flow statements over the asset’s life.
C) With the cash basis, revenues and expenses relating to the equipment are generally recognized in different periods.
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发表于 2009-3-3 09:15
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