Question

A change from cash basis to accrual basis of accounting is a change in accounting principle and is handled retrospectively.

a-true
b-false

Answer 1

False. A change from cash basis to accrual basis of accounting is a change in accounting principle and is handled prospectively.

Step-by-step explanation:

False. A change from cash basis to accrual basis of accounting is a change in accounting principle and is handled prospectively.

When transitioning from cash basis to accrual basis, the change is implemented from the current period moving forward. Only future transactions are recorded using the accrual method. No adjustments are made to the past financial records.

For example, if a company used cash basis accounting in the past and decides to switch to accrual basis, the previous financial statements will remain in the cash basis, while the future statements will follow the accrual method.