Multiple choice

Directions: Choose the correct option for the given question.

Which of the following statements about preparation of financial statements of a limited liability company is correct ?

  1. Financial statements should be prepared according to the cash basis of accounting only.

  2. Financial statements should be prepared according to the accrual basis of accounting only.

  3. Financial statements should be prepared according to either the cash basis or accrual basis of accounting.

  4. Financial statements should be prepared according to both the accrual and cash basis of accounting.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Limited liability companies must prepare financial statements using accrual basis accounting as per statutory requirements and accounting standards. Accrual basis recognizes revenues when earned and expenses when incurred, matching income to the period it relates to. Cash basis is not appropriate for corporate financial reporting as it doesn't reflect true financial position.

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