Cash and Accrual Accounting are two elemental accounting methods that are essential to keep records of the expenses and income of a business (Zarandi, et al., 2013).Therefore throughout this essay I will be discussing the advantages and disadvantages of each method in order to conclude which accounting method is more useful for a business. Cash accounting is more favoured especially for small businesses whereby the income is only counted when the payment is received and the expenses are practically paid whereas the accrual accounting method accounts for revenue when the sale takes place and the expenses are counted when the goods or services are received regardless of whether the receivables are literally received or if the payments are paid (Zarandi, et al., 2013). The accrual accounting method is considered the most favourable for businesses and Zarandi, et al. (2013, p. 245) supports this by summing up their argument that the accrual system is "understandable, reliable, comparable and relevant" and argue that the accrual method has become popular in the UK and the reason is because the information gained from accrual accounting provides a full reflection of the overall impact of 'managerial actions or endeavors on future cash flows than cash flow realizations in any given period.' Hence this clearly shows that the accrual method is more effective as the results from Zarandi, et al. (2013, p. 1) research shows that overall the Accrual method is better for "managing accounting affairs compared to in comparison to the cash accounting method."
On the other hand, (Adrianna and Alexandra, n.d. ) are highly critical of the above view of accrual accounting being more preferred than cash accounting as cash accounting is more favourable...
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...nesses in particular small businesses. However, Linda, (2007, p.11) argues that cash accounting "does not match revenues and expenses to the actual period in which the transactions occurred". Therefore this becomes a disadvantage for cash accounting. On the other hand, Linda ( 2007, p.11) claims accrual accounting may be seen as a better alternative to cash basis as this method unlike cash accounting does "provide a better analytical tool because it closely matches revenues and expenses to the actual period in which the transactions occurred". Despite the accrual accounting method being described by Linda ( 2007, p.11) as a "complex double entry system of accounting" it does provide a more accurate image and detailed information on the financial position and performance of a company which is crucial, therefore an advantage as it produces valid and useful reports.
The Commissioner of Internal Revenue (Commissioner) argued that Jim Turin & Sons, Inc. should have used the accrual method of accounting. By using the accrual method of accounting “you generally report income in the year earned and deduct or capitalize expenses in the year incurred. The purpose of an accrual method of accounting is to match income and expenses in the correct year.” (IRS, 2017).
The Accrual basis of accounting is used for Peyton Approved. The Accrual basis of accounting records each transaction as it occurs. Revenues are recorded when earned and expenses are recorded when incurred. When using the Accrual basis of accounting a business is able to see a clear picture of its revenues and expenses. It is important that Peyton Approved keeps track of revenue and expenses, especially only when revenue is earned and expenses only when they have been incurred. When transactions are made, such as for baking supplies it is recorded in our ledgers. In an accounting cycle each step is important, if you were to miss a step then each step after will need to be adjusted. For a successful business each step needs to be completed with accuracy. If a
Marshall, M.H., McManus, W.W., Viele, V.F. (2003). Accounting: What the Numbers Mean. 6th ed. New York: McGraw-Hill Companies.
To counter this problem, computer assisted audit techniques have been developed. These systems are able to provide a more in depth analysis of the utilized billing systems. Computer assisted audit techniques also enable highly efficient assessment of transactions. By utilizing this system, an auditor could gain a clearer picture of the revenue reporting mechanisms that are being utilized by the business office. Once the information is derived, however, its interpretation, while simpler, will still require an individual that is knowledgeable in regard to the revenue cycle
Despite this appealing advantage, the financial statements you prepare may not truly reflect your company’s performance for a given period since revenue and expenses related to the same transaction can be reported in two different periods. For example, if you pay most of the expenses related to a specific job at the end of one year but don’t receive payment from your client until the next, your income statements may indicate a big jump in profitability from one year to the next, which can lead to incorrect conclusions. Cash basis accounting tends to be simpler to understand than other accounting methods. If you choose to implement the cash method for your small business, it may not be necessary to seek the help of a professional accountant. The cash method most resembles a cash flow statement. It provides an accurate picture of how much cash your business actually has on-hand. Also, The cash method can be done with a simple single-entry system, so a complex accounting program is not always necessary. (Paychex,
Management accounting in organisation is very important for decision-making and to make the business more efficient and therefore increasing its profits. Is the process of preparing accounts that can help managers to make day-to-day and short-term decisions, by providing them with accurate and timely key financial and statistical information...
This paper will discuss these steps in detail. Because I work at home, I am not currently involved in any of the steps of the accounting cycle. The examples I give in this paper will be from various jobs I have held in the past.
Transactional Processing The accounting software packages developed and distributed by Sage and Microsoft, respectively, each use their own methods for recording accounting information. Sage 50. There are three different areas that must be discussed. These are the revenue, expenditure, and financing cycles. These areas are written about from the author's own knowledge from using the software, as learned from the book by Carol Yacht (2013).
GAAP is exceptionally useful because it attempts to regulate and normalize accounting definitions, assumptions, and methods. Because of generally accepted accounting principles one is able to presuppose that there is uniformity from year to year in the methods that are used to prepare a company's financial statements. And even though variations might exist, one can make realistically confident conclusions when comparing one company to another, or when comparing one company's financial statistics to the statistics for the industry as a whole. Over the years the generally accepted accounting principles have become more multifaceted because financial transactions have become more intricate (Accounting Principles, 2011).
Financial accounting is the analysis, classification, and recording of financial transactions and reporting such information to respective users especially external users who use the information to make decisions about their engagements with the entity. In financial accounting general purpose financial statements are used for external reporting. The public by standards imposes the development of the statements through respective national professional bodies, International Accounting Standards Board and respective company Acts for various nations.
Accounting is the pillar of every company to measure its growth, loss, revenue , capital, its really specify the real terms in foam of figures and sometimes in tables, in accounting there are certain rules are obtained to make more accuracy while playing with figures.
The accounting cycle is a series of steps starting with recording business transactions and leading up to the preparation of financial statements. This financial process demonstrates the purpose of financial accounting–to create useful financial information in the form of general-purpose financial statements. In other words, the sole purpose of recording transactions and keeping track of expenses and revenues is turn this data into meaning financial information by presenting it in the form of a balance sheet, income statement, statement of owner’s equity, and statement of cash flows.
The revenue/cost period-: Revenue and the cost period in accounting that the company get income from normal business activities. It’s referred to normal business income that the company got by selling their product and service.
The following essay aims to analyse in depth a computerised accounting system and its aspects such as its history, what technologies is based on, and how it has developed since its beginning. Other aspects such as the current state of the system and the interactions with other systems and the future of the system will also be covered in this paper.
The recording of accounting history allows for research of a high calibre and quality to be developed. If developments and research of the past were not recorded