Q: Which accounting system most accurately reflects profitability?

Answer: 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.