Accrual basis accounting is a method that recognizes income when it is earned and expenses when they are incurred, regardless of when cash transactions occur. Let’s evaluate the options:
- A) Income is generally larger with accrual basis accounting: This statement is not necessarily true. The recognized income may vary based on the timing of sales and expense recognition.
- B) Accrual basis accounting provides a better measure of performance: This is generally true. Accrual accounting offers a more accurate picture of a company’s financial condition and performance over time because it reflects all resources earned and obligations incurred.
- C) Accrual basis accounting is not required by GAAP: This statement is false. GAAP (Generally Accepted Accounting Principles) requires the use of accrual accounting for most businesses.
- D) Accru: This option appears incomplete and does not provide a valid statement to evaluate.
In conclusion, option B is the most accurate statement regarding accrual basis accounting, as it indeed provides a clearer picture of a company’s financial performance.