Match the items of the following two lists and indicate the correct answer: List-I List-II a. Earning ability of a firm 1. Basis of accounting b. Conservatism 2. P/V ratio c. Cash profit 3. Cash flow statement d. Cash and accrual 4. Prudence

The correct answer is: C. a-3, b-4, c-1, d-2

• Earning ability of a firm is a measure of a company’s profitability. It is calculated by dividing the company’s net income by its total assets.
• Conservatism is a principle of accounting that states that assets should be recorded at their historical cost, and that liabilities should be recorded at their estimated amount.
• Cash profit is the amount of cash that a company generates from its operations. It is calculated by subtracting the cost of goods sold, operating expenses, and depreciation from the company’s revenue.
• Cash flow statement is a financial statement that shows how a company’s cash flows in and out over a period of time. It is divided into three sections: operating activities, investing activities, and financing activities.
• Cash and accrual is a basis of accounting that records revenues and expenses when they are earned or incurred, regardless of when cash is received or paid.

Here is a brief explanation of each option:

• Option A: a-2, b-4, c-3, d-1. This option is incorrect because it matches “Earning ability of a firm” with “P/V ratio”. The P/V ratio is a measure of a company’s profitability, but it is not the same as earning ability. Earning ability is a more general term that refers to a company’s ability to generate profits.
• Option B: a-2, b-1, c-4, d-3. This option is incorrect because it matches “Conservatism” with “Basis of accounting”. Conservatism is a principle of accounting, but it is not the same as basis of accounting. Basis of accounting refers to the method that a company uses to record its revenues and expenses.
• Option C: a-3, b-4, c-1, d-2. This option is correct because it matches the items in List-I with the items in List-II correctly.
• Option D: a-3, b-4, c-2, d-1. This option is incorrect because it matches “Cash profit” with “Conservatism”. Cash profit is a measure of a company’s cash flow, but it is not the same as conservatism. Conservatism is a principle of accounting that states that assets should be recorded at their historical cost, and that liabilities should be recorded at their estimated amount.