When an organization uses the ___________ accounting method, it will be a better indicator of future cash flows and overall performance than using current cash receipts and disbursements.

• A. Accrual
• B. Financial
• C. Cash
• D. General

Answer: (A)

Accrual accounting recognizes revenue when it is earned and expenses when they are incurred, regardless of when cash actually moves. This approach matches income and related costs to the period in which services are provided and obligations are created, giving a fuller view of ongoing performance and the likely future cash needs. In healthcare, services delivered in one period may be billed and collected later, and expenses incurred may be paid after the period ends. By recording these items as they occur, accrual accounting reveals true profitability for the period and signals upcoming cash inflows and outflows through accounts receivable and payable. Cash receipts and disbursements alone can mislead, because they only show actual cash movements, not the timing of earned revenue or incurred expenses. Depreciation, accrued liabilities, and other non-cash items also feed into this view, enhancing the ability to forecast future cash flows. Hence, accrual accounting provides the best indicator of future cash flows and overall performance.