\"Accounting Adjustments\" Please respond to the following: Watch Accounting WIT
ID: 2425903 • Letter: #
Question
"Accounting Adjustments" Please respond to the following:
Watch Accounting WITT’s video: https://www.youtube.com/watch?v=aPwdgUDXkkE
Next, explain the major advantages and disadvantages inherent in using both the cash and the accrual basis of accounting. Then, determine the one (1) that you believe provides the most useful financial information to users. Identify at least two (2) types of businesses that would benefit by preparing financial statements using either the cash or accrual basis of accounting. Justify your response.
Explanation / Answer
Cash basis of Accounting
The advantages of the cash basis of accounting are that is easy, simple and flexible to understand and applying into business. It takes cash flow in consideration. In this, Income is not taxed if it is not received. The major disadvantage is there is no any control on accounts receivable and accounts payable. It does not represent true picture of financial position.
Accrual basis of Accounting
The advantages of the accrual basis of accounting are that first it is accepted by GAAP and offers a true picture of financial position of a business. The accrual method gives a long term picture of the business. On the other hand, the disadvantage is accrual is complicated than the cash method and it takes lot of efforts as well to prepare financial statements.
Most small businesses can adopt either accounting method from both.The accrual method is good if business has huge sales like $4-5 million per year.Cash is only good for small business liek retail industry.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.