Question

A finance textbook likens accrual accounting information to "nail soup." The recipe for nail soup includes the usual soup ingredients such as broth and noodles, but it also includes nails. This means with each spoonful of nail soup, one gets nails with broth and noodles. Accordingly, to eat the soup, one must remove the nails from each spoonful. The textbook went on to say that accountants include much valuable information in financial reports but one must remove the accounting accruals (nails) to make the information useful.

Required:
Critique the analogy of accrual accounting to "nail soup."



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  • CreatedJanuary 22, 2015
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