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similarities between cash and accrual basis of accounting
similarities between cash and accrual basis of accounting
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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. Double-entry accounting is used to develop accounting data. From this data, we can determine the performance of a business by calculating its profit, revenues - expenses. Juchau et al (2004:F146) states that "double-entry accounting is necessary for the accounting equation to be kept in balance." That is the five types of accounts, Assets, Liabilities, Equity, Revenues and Expenses must equate: Assets = Liabilities + Equity + Revenues - Expenses, this is the accounting equation. These accounts are recorded in the General Journal as entries and posted to the General Ledgers as `T'-accounts. Recording of these accounts are governed by Debit and Credit rules. When an asset or expense increases, it is considered a debit, when either of the two accounts decreases, it is considered a credit. Liabilities, equity and revenues can be considered the opposites to assets and expenses in that they form a debit when decreased and a credit when increased. From this, a duality of recording is formed since every event of recording a transaction involves recording one debit and one credit. For example, Famous Zamous, a cookie company sold $1000 worth of cookies on th... ... middle of paper ... ...ugh the sale was made on the 1st of Jan, the cash measurement of accounting has failed to show any activity on the 1st of Jan. This results in a distorted report of financing operations of Famous Zamous. Similarly, net profit for the month of January in cash accounting would have differed from that of the accrual measurement, being that revenues and expenses recorded are of different balances, cash accounting being that of lacking information. In conclusion, accrual accounting is the better system as it provides a more accurate account of the operations and performances of a business. Bibliography: Juchau R., Flanagan J., Mitchell G., Tibbits G., Ingram R.W., Albright T.L., Baldwin B.A. & Hill J.W. 2004 Accounting information for Decisions Australia: Thomson Zafirakis, M. 2005 Accounting Handbook Australia: Trinity College Foundations Studies Program
In order for Jim Turin & Sons, Inc to have used this method of accounting it would have had to match the cost of the merchandise with the revenue earned from the sale. Using the matching of revenue and cost the company would have had to have kept an actual inventory and maintained records of the costs associated with said inventory. Since the costs are not immediately deducted under the accrual method they are deferred to the year when the merchandise is
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...
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.
Marshall, M.H., McManus, W.W., Viele, V.F. (2003). Accounting: What the Numbers Mean. 6th ed. New York: McGraw-Hill Companies.
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).
Accounting is the language of business. Accounting records and processes financial information into an accessible format that can be understood by anybody in the business world. It is defined in business that accounting is “the recording, measurement, and interpretation of financial information.” (Ferrell, Hirt, Ferrell, 2016, p. 286). Companies uses accounting tools to evaluate organizational operations. Accountants summarize the information from a firm’s business transactions in various financial statements for a variety of stockholders. There is a lot of business failures that happen because of information that is “hidden” in the financial statements. Cash flow is the greatest concern of management. For businesses to succeed, they need
Every transaction gets entered twice in financial records. If one day you sold three gold coins ' worth of pepper, you would write that the amount of cash you had went up by three gold coins. You would also write in that the amount of pepper you had went down by three gold coins ' worth. Before double-entry, people just kept diaries and counted their money at the end of the day. This innovation allowed merchants to see every aspect of their business in neat little rows. (Kestenbaum,
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.
This shows the total balance of credits and debits are equality after the temporary accounts had being zero and didn’t list on the post-closing trial balance. This is the end of accounting cycle and it will start again with the first step in the next accounting
The accounting equation-: Accounting equation tells us a easy way to understand that law assets, liabilities of
ABC LTD COMPREHENSIVE INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2012 NOTE 2012 Revenue 2 828,500 Cost of sales 3 (460,000) Gross profit 368,500 Other income 4 2,500 Operating expenses 5 361000 Profit before income tax 10000 Income tax expense (30%) 3,000 Profit for the year 7000 Other comprehensive income change in revaulation surplus 38500 Other comprehensive income for the year, net of tax 38500 Total comprehensive income for the year 45500 ABC LTD STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 30 JUNE 2012 NOTES 2012 ASSETS Current assets Cash and cash equivalents 6 100500 Trade and other receivables 7 45,200 Inventories 8 87700 Other current assets 9 7000
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 success of a company is very dependent upon its financial accounting. In accounting there are numerous Regulatory bodies that govern the accounting world. These companies are extremely important to a company because they set the standards when it comes to the language and decision making of a company. These regulatory bodies can be structured as agencies, associations, commissions, and boards. Without companies like the Security and Exchange Commission (SEC), The Financial Accounting Standards Board (FASB), the Governmental Accounting Standards Board (GASB), Internal Accounting Standards Board (IASB), Internal Revenue Service (IRS), and other regulatory bodies a company could not make well informed decisions. In this paper the author will look at only four of them.
Modern information system is now popular all over the world, it also change the accounting area. Instead of the old manual analysis, many companies making effort in developing a fitted accounting information system for themselves, as they realize the advantages that the new technology brings in - more efficient and accurate in processing, integrated data, detailed record etc. However, even though there are so many benefits, the functional system also brings challenges, making new requirements to the accountants and auditors. This paper will discuss the impact of technology to the accounting information system, as well as the necessary capability ethics that the accountants should learn in this 21th century.