Justification report 2.3

Assignment 2.2: Justification Report - Part 2

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Strayer University

Dr. Saraswathi Lakshmanan

April 26, 2015

Evaluation of alternatives

Turnover of less than three million dollars per year. Turnover is the revenue that is received in a business from the sales that may have been done. Thus in the accrual accounting method, turnover will only be realized when a product is for example shipped. Thus the turnover of not less than three million per year will be recognized once the sales have been made disregarding if payment is made so long as in the accounting books the product is already with the customer. Since not all the revenue is collected when the year is coming to a close, there is some an uncertainty of the payment occurring and this is cleared by the inclusion of allowance for doubtful accounts that will ensure that the total turnover will be three million dollars at the very least (Pratt, 2011).

For the cash accounting method, to ensure there is certainty in the turnover of not less than three million dollars all the sales made are recorded as soon as they are done and money collected is also recorded accurately (Albrecht, 2011).

Tax levy pay of not more than half a million dollars per year. Tax has to be paid in full once it is charged. For the business it will have to be charged for all the goods that are brought forth for sale. Thus in accrual accounting, the tax levied should be indicated which one they are since as Fischer explains revenue from property taxes, intergovernmental grants, entitlements and shared revenues; interests on investments and delinquent taxes; billed charges for services are normally recognized under the modified accrual basis. This comes with the condition if funds will be collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period.

For the cash accounting method, taxes imposed on the goods is paid at that point thus in the revenue the amount of tax is easy to obtain. This is also helpful in the determining of the amount to be deducted when accounting for the total amount if expenses incurred while running the business (Fischer, 2008).

Non profitable organizations. In the accrual accounting, accounting in this organizations may be seen to be hard due to some of the records of the documents involved in the sale of the product may have gone missing from the records. Thus to overcome this an account is set to be opened for a specific item and then record all the information that is given. The balancing figure would then represent the information missing (Flynn, 2005).

In the cash accounting, an organization that is run with its main aim is not to make any profits has to have its accounts checked frequently and often. Thus accounting is done to ensure that cost are limited as much as possible and this is done majorly by developing nonfinancial performance measures in addition to the financial performance measures.

Firms that have one distinct way of accounting. In firms that use accrual way of accounting, they have an advantage of producing more accurate and more faithful financial statements. This can be viewed as due to the accounting is done once the product has been decided to be sold. However as much as it has a major advantage, the transactions have to be recorded at the time of their occurrence and since invoice may not go by the real time, there is the application of some guesswork in filling the invoices.

Cash accounting used in firms too has its advantages such as the cash system is easy to understand as records are made as soon as the cash is received. Also to it is it shows the cash flows and that it is a single-entry system.

The firms decide on their own which accounting method they would choose. There are firms that would be comfortable in receiving the total payment once the product has been delivered to the intended buyer hence the accrual whereas there is the firm that prefers cash method of accounting which is seen to have less of the doubtful accounts (Daily, 2008).

Findings and Analysis

For a business to run well, the accounting records have to be kept well and easy for reach for the reviewing and easy to understand. Thus from the evaluation, it is noted that for the exact turnover to be achieved, the records has to be kept well and in this the cash system is preferred since the accrual system involves the allowance of doubtful debts account that will have to cater for those who may decide to return the product instead of buying it.

Tax to be paid in each transaction has to be clearly indicated and the amount shown. In this both the accrual and cash accounting are both preferred since each has its own conditions set. With this, it caters for the charges imposed in the goods and in the accrual the doubtful payments to be paid are also considered.

In the running of the non-profitable organizations, the preferred mode of accounting id the cash accounting. This is due to the fact that the organization is ran with the aim of not making any profit. Consequently, the cost incurred in running the firm will have to be minimal and can be clearly indicated in the cash accounting method.

Firms may have a hard time deciding which mode of accounting to use. Some may prefer accrual others cash while others may prefer mixing both. It has been viewed that the better option would be for the buyer to decide which one he would be comfortable with and consult the business in order to see if his terms comply with those also of the seller. This enhances a better relationship between the buyer and the one running the business.

Therefore with all the alternatives given, the one most applicable is whereby the firm in conjunction with the buyer decides which form of accounting is best between them and if both could comply to easy others terms so as to run the business successfully.

References

Albrecht, W. S., Stice, E. K., & Stice, J. D. (2011). Financial accounting. Mason, OH: South-Western/Cengage Learning.

Aristotle, Mayhew, R., Mirhady, D. C., & Anaximenes, . (2011). Problems. Cambridge, Mass: Harvard University Press.

Chesla, E. L. (2000). Practical solutions for everyday work problems. New York: Learning Express.

Daily, F. W. (2008). Tax savvy for small business. Berkeley, CA: NOLO.

Fischer, P. M., Taylor, W. J., & Cheng, R. H. (2008). Fundamentals of advanced accounting. Mason, OH: Thomson/South-Western.

Flynn, D. (2005). Fundamental accounting. Kenwyn: Juta.

Gibson, J., & TMW Media Group. (2009). Work problems. Venice, CA: TMW Media Group.

Hubbard, L. R. (2007). The problems of work: Scientology applied to the workaday world. Los Angeles, Calif: Bridge Publications, Inc.

Pratt, J. (2011). Financial accounting in an economic context. Hoboken, NJ: Wiley.