Question

Which basis of accounting, cash basis or accrual basis, provides a better economic indicator of how profitable a company is?

a. cash basis

b. it depends on what industry a company is in

c. accrual basis

d. cash or accrual are equally good economic indicators

2. What two major sources of a company's financing are reflected on the balance sheet?

a. borrowing, owner investment

b. public financing, private financing

c. venture capital, borrowing

d. common stock, preferred stock

Answer 1

Question no 1

Answer (c). Accrual basis.

Since in accrual basis the revenue and expenses are matched for the relevent period which help to calculate the correct profits of the company.

Also accrual basis also take some non cash cost incurred during the relevent period for example depreciation

Question no 2

Answer (a) borrowing. Owner investment

Borrowing and owners investment are the two major sources which are reflected on the balance sheet

Borrowing is shown under the heading liabilities

And owners investment is shown under heading Equity.