Question: Some analysts believe cash-based numbers are more reliable than accrual-based numbers because they feel the adjustment process allows management too much discretion to manipulate the

Some analysts believe cash-based numbers are more reliable than accrual-based numbers because they feel the adjustment process allows management too much discretion to manipulate the results. One analyst was overheard to say: "You can't always trust the profit figure reported, because of all the estimates and judgement that go into its determination. That's why I always compare accrual-based ratios with cash-based ratios when analyzing a company."
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Write a memo explaining the advantages and disadvantages of accrual-based ratios and cash-based ratios. Include in your answer a discussion of whether you think it is possible to manipulate cash-based figures, or only accrual-based figures.

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MEMO To From Accountant Re Analysis of financial results using cashbased ratios versus accrualbased ratios Financial statements are prepared using the accrual basis of accounting Accrual accounting ha... View full answer

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