Accounting And Accrual Basis Of Accounting Essay - 983 Words

1) Business owners are given a choice between using the cash basis of accounting and the accrual basis of accounting. a) Which of the two methods do you believe a business would choose? Depends on what kind of benefit the business owners are looking for. b) Why? If owners are looking for more accurate revenue and expense, accrual basis should be applied. However, if the owner is looking for less work by cutting down the time to make adjusting entries and want to know more accurate view of cash flows, the business owners will likely to choose cash basis. c) What type of business is likely to use a cash basis or modified cash basis and why? Small businesses will likely to use a cash basis or modified cash basis because the accrual basis of accounting is not required by the reporting purpose and cash basis require less accounting knowledge. For example, when I go to QQ bakery or Liang Chinese BBQ place on 13miles and Dequindre, they only take cash. Though it is not limited to cash-only businesses, if the businesses only accept cash, I think this type of businesses are highly likely to use cash basis or modified cash basis. 2) Based on the method selected in #1a, a) Will the financial statements presented show a true representation of the company s performance? Accrual basis shows a true representation of the company’s performance. Please see the further explanation on 2) c) for detailed amounts. b) On which financial statement did you focus toShow MoreRelatedAccrual Basis Of Accounting Over Cash Basis1534 Words   |  7 PagesThere has been a significant debate focusing on costs and benefits of adopting accrual basis of accounting over cash basis of accounting. This paper illustrates the concepts of accrual basis of accounting, highlights the benefits of accrual basis of accounting posed by its advocates and also briefly discusses the disadvantages of adopting accrual basis accounting. The paper also briefly discusses the recent accounting scandal of Tesco Plc. which showed that profits of the company were overestimatedRead MoreAccrual Basis Accounting Essay example786 Words   |  4 PagesAccrual Basis Accounting Accrual accounting is a system of accounting that is based on the accrual principal accounting. This principal requires revenue to be recognized and recorded when earned. Expenses are to be recorded when they occur. The accrual basis of accounting is used by most companies. Very small businesses and individuals use cash basis accounting. The major distinction between the accrual and the cash basis of accounting is when revenue and expenses are recognized. When theRead MoreAccounting and Finance: Essay on Accrual Basis1097 Words   |  5 PagesAC300:Financial Accounting I - Compulsory essay due 15th November Discuss the advantages and disadvantages of financial statements prepared on an accrual basis The financial statement is a financial document used to indicate the financial position of a business at a particular moment in time. A business’s financial position can be analysed into three main areas: Profitability, liquidity and stewardships. The statement is prepared at the end of each financial year using accounting basis. The Accrual accountingRead MoreDefine: Generally Accepted Accounting Principles and Accrual Basis1391 Words   |  6 PagesEquity 2 What is the purpose of an account? What is the purpose of a ledger? 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In this essay, I will compare the difference between cash basis and accrual basis on expense and revenue. In addition, how can company choose their measurement of profit will also be discussed. Cash basis accrual basis Cash basis accounting is focus