QUESTION: (50-100 words)
Cash vs Accrual Accounting
Hello Current and Future Accountants!
First of all, let me just say that anyone can copy from the text. I'm not going to ask you to parrot back the definitions of cash and accrual accounting. I would like for you to describe the two methods in your own words first. Then, answer the following questions:
Effectively discuss the differences between Cash and Accrual Accounting by answering the following questions:
1. Which basis is accepted by GAAP?
2. Which method do you believe yields the best picture of what is really happening in the business? Why?
3 Give an example of a business that may be able to use either basis with little or no effect on the outcome of net income.
NAI's ANSWER: (50 words)
1. The Accrual Accounting system is accepted by GAAP. Cash basis accounting is not.
2. I think the best method of accounting is the Accrual basis. It certainly paints a better picture for me of how the business is doing verses a Cash basis. Accrual captures real time transactions while Cash systems captures when revenue is received.
3. The business that I am in, Telecom is driven on Accruals because we are always billing for services. Some challenges we face are when customers do not pay their bills. Then we have to write them off. I can't think of a good cash basis business unless you're a small retailer of some type.
RUBY's ANSWER: (50 words)
1. Which basis is accepted by GAAP?
2. Which method do you believe yields the best picture of what is really happening in the business? Why?
3 Give an example of a business that may be able to use either basis with little or no effect on the outcome of net income.
For the accrual method, this may be ideal for a business such as a real estate company/agency. This seems to me to go hand in hand with all of the paperwork that goes into completing for both a home-buyer and a seller. For the cash-basis method, this may be ideal for someone who has a salon or who is a beautician or cosmetologist. This would work better someone in this field or business because it would insure no possible interruption within them running their business.