17. You are the financial director for Memphis Memorial Hospital, which is curre

Question

17. You are the financial director for Memphis Memorial Hospital, which is currently using the accrual method. Your CFO suggests switching to cash basis accounting. You know that the suggestion is unacceptable. What is your best defense of the current method used by Memphis Memorial? Accrual accounting is more conservative than cash accounting. Cash basis accounting can be used only for tax purposes. You cannot defend this position. Cash accounting is the approved method of reporting under Generally Accepted Accounting Principles. Timing differences in the receipt and the disbursement of cash can misrepresent the economic reality of the transactions recorded. A. B. C. D.

Explanation / Answer

The correct answer is D

Explanation:- Accrual accounting accounts for the timing difference between when a transaction occurs and when cash is exchanged. Under the accrual method, revenue is recorded when its earned and expenses are recorded when they are incurred no matter when cash is received or expended.

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