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Profit differs from cash flow chiefly because profit is computed on

  • A.the cash basis
  • B.a forecast basis
  • C.a tax basis in every jurisdiction
  • D.the accrual basis

Answer: D

Revenue is recognised when earned and expenses when incurred, regardless of when the money moves, and non-cash charges such as depreciation are deducted. A firm can therefore report a healthy profit while its bank balance falls.

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