Question

Which of the following is not followed in capital budgeting?

• A. Cash flows Principle
• B. Interest Exclusion Principle
• C. Accrual Principle
• D. Post-tax Principle

Answer 1

Answer: (C)

Accrual Principle

Capital budgeting has five principles that plays a crucial role in the allocation of money and the process of capital budgeting.

The five principles are:-

(1) Decision are based on cash flows, not accounting income,

(2) Cash flow are based on opportunity cost,

(3) The timing of cash flows are important,

(4) Cash flows are analysed on an after tax basis

(5) Financing costs are reflected on projects required rate of return.

Accrual principle is not followed in capital budgeting.