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QWhich accounting system most accurately reflects profitability?

ID: #24240 Elements of Accounting 47 views
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#24240Q ID
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Elements of AccountingTopic
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  • A Cash Accounting ✔ ✖
  • B Flow of Funds Accounting ✔ ✖
  • C Accrual Accounting ✔ ✖
Correct Answer: Option C

Explanation

The correct answer is:

C. Accrual Accounting ✅

👉 Explanation:

  • Cash Accounting → Records transactions only when cash is received or paid. This does not always reflect true profitability, because revenues and expenses may occur in different periods.

  • Flow of Funds Accounting → Focuses on the movement of funds and resources, not on profitability.

  • Accrual Accounting → Records income when earned and expenses when incurred, regardless of cash flow.

    • This matches revenues with related expenses in the correct period.

    • Hence, it provides the most accurate picture of profitability.

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