Advantages and Disadvantages to Cash and Accural Accounting Essay

Advantages and Disadvantages to Cash and Accural Accounting Essay

Length: 1289 words (3.7 double-spaced pages)

Rating: Strong Essays

Open Document

Essay Preview

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...


... middle of paper ...


...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.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Companies in the Stock Market Essay

- The companies have to lose something when getting the fund as well as the other advantages comes from going public. There are several disadvantages that the companies may suffer. First, being publicly listed in a stock market is not being done in an easy and simple way. For a company to trade its stock in stock market, following the requirements of Securities Exchange Act 1934 as well as other regulations monitored by Securities Exchange Commission (SEC) is compulsory. Primary requirements of Securities Exchange Act 1934 include disclosure of periodic financial report which consists of the revenue, cash flow and assets of a company....   [tags: Disadvantages, Advantages, Listed]

Strong Essays
655 words (1.9 pages)

The Career Of Accounting : A Career In Accounting Essay

- The career that I have in my mind when I started high school is one in Accounting. Luckily, this career was one matched closely to my interest and personality type. Although I have begun considering other career avenues, I still choose to research this specific career in depth. Managers must have updated financial information to make important decisions. Accountants and auditors prepare, analyze, and verify financial reports that furnish this kind of information to managers in all business, industrial, and government organizations....   [tags: Certified Public Accountant, Financial audit]

Strong Essays
1440 words (4.1 pages)

Disadvantages Of Having An Accountant Essay

- Disadvantages of Having an Accountant The following disadvantages to be discussed in this section are (1) cost and (2) liability. Cost. When establishing a small business and in the being phase of a startup company, money is tight. The company has yet to take shape but the need to generate growth is a huge concern. Cost is an incremental factor that deters the businesses owners’ decision to hire an accountant. Part of the costs involved in hiring an accountant includes their salary, benefits, and office space....   [tags: Business, Small business, Startup company]

Strong Essays
1065 words (3 pages)

Cost and Management Accounting: Improving Cost and Cost Control Essay

- Cost and management accounting is an integral element in preparation of an entity’s financial reports. Cost accounting consists of various branches, including; job and process costing, absorption costing, traditional costing and activity based costing. An efficient costing system allows managers and other users of financial reports to make decisions to better the company, in reducing and stream-lining costs, to improve overall profits. The way in which managers achieve this can be a rigorous and time consuming task, however, if a costing system can be perfected, productivity and general cost reduction can be achieved and an overall more efficient operation of the business will ensue....   [tags: financial reports, absorption, business]

Strong Essays
1894 words (5.4 pages)

The Cash Vs. Accrual Accounting Essay

- Every small business must make a choice between two accounting methods, the cash method or the accrual method. The difference between the two is how and when you record income and expenses. In the cash vs accrual accounting debate, most experts recommend the accrual method for businesses, however, there are pros and cons to both and ultimately it 's up to you to decide which is right for your business. An accounting method wherein revenues are recognized when cash is received and expenses are recognized when paid....   [tags: Generally Accepted Accounting Principles]

Strong Essays
1324 words (3.8 pages)

Essay on Evaluating The Selection Process Is A Method For Selection

- In the world of fierce competition between businesses, some of the utmost important decisions that organizational leaders are faced with are decisions related to the projects they agree to undertake. Every organization has to determine how to make their product or service stand out, this typically leads to project proposals. The majority of organizations have a process, some formal and some informal, to select and prioritize projects. Once a project proposal has been submitted to the organization, there are various factors that need to be considered before the project is to officially begin....   [tags: Net present value, Project management, Cash flow]

Strong Essays
872 words (2.5 pages)

Evaluating The Selection Process Of An Organization Essay examples

- In a world of fierce competition between businesses, one of the utmost important decisions that organizational leaders are faced with are decisions related to the projects they agree to undertake to better meet organizational goals. Every organization has to determine how to make their product or service stand out, this ordinarily leads to project proposals. The majority of organizations have a process, some formal and some informal, to select and prioritize projects. Once a project proposal has been submitted to the organization, there are various factors that need to be considered before the project is to officially begin....   [tags: Net present value, Project management, Cash flow]

Strong Essays
878 words (2.5 pages)

How Effective Are Accruals And Going Concern Concepts Essay

- In today’s world there is a lot of discussion of how effective are accruals and going concern concepts are been regarded as fundamentals during the making of financial statements. Many people believe that there are a lot of pros and cons of these types of concepts. There is also another discussion on how difficult to apply these sorts of concepts (going concern and accrual concepts). Going concern are like assumptions in accounting from which financial statements are created for every business. Financial statements are basically those statements where it records all the cash transaction within the business....   [tags: Generally Accepted Accounting Principles]

Strong Essays
735 words (2.1 pages)

The Balance Sheet Essay

- Before establishing the accuracy of the balance sheet as a valuation tool it is important to understand that to produce a document that shows the exact value of a company is virtually impossible. The combination of all assets, liabilities, owners equity and many other factors must be calculated in order to reach a final value. However, the methods used when valuing, and the constant changes in the economy and inflation make the value of the company itself a constantly changing figure. Therefore should an accurate value of the company be produced it would only be accurate at the time it is produced....   [tags: Financial Statements Accounting]

Free Essays
1630 words (4.7 pages)

Accrual Accounting vs. Cash Accounting Essay

- The recording of financial activities in a business is essential in making sure accurate information is provided for decision making. Zafirakis (2005:4) states that "Accrual accounting is the cornerstone of modern accounting procedures." In this essay, the importance of accrual accounting will be considered by looking at how it functions in the Double Entry System and comparing it to cash accounting, another method of gathering financial information. Time and an accurate accounting measurement is what will be considered in determining the importance of accrual accounting....   [tags: Financial Accounting Basis]

Strong Essays
1134 words (3.2 pages)