Discussion:
Review the Youtube video: Cash and Accrual - Conceptual
• Based on the video, explain two (2) advantages and two (2) disadvantages 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.
Please read and respond to the below post of(1) another student.
Other Student Reponse:
Cash Basis
Advantages:
The breakdown of revenues and expenses are simple and easy to understand. It shows what happened in the business; how cash happened in the business; the amount spent versus earned.
Disadvantages:
(1) Chance of errors using single entry system.
(2) Future expenses are not taken into account.
A small business such as a landscaping company or a cleaning business would benefit from a cash basis accounting system.
Accrual Basis Representative way... tells the companies story showing how companies are making or losing money during a period.
Advantages:
(1) Revenue is shown when it is earned; not when cash happened.
(2) More accurate; Provides a better representation of the business for investors to judge.
Disadvantages:
(1) Transactions are recorded at the time they occur.
(2) Invoices don't usually coincide with actual events
Corporations and businesses that take credit in the form of payments would benefit from using the accrual basis system.
I believe that the accrual basis system provides the most useful financial information to users because it allows investors to decide on whether they want to invest in a company.