315 Assignment Justification Report – power point
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week_8_power_point_315.pptxCash V Accrual methods
ENG 315 Professional Communication
Name: Kevin Reasoner
Title: Cash V Accrual methods of Accounting
Introduction:
Generally, it is our clients who decide on the kind of accounting methods that they want to be used to handle their accounts.
Over the last twenty years this tendency has been marked.
Businesses remain in operation for three years and then they are bankrupt.
What leads to the demise of these businesses is the accounting criteria that are being applied for the various businesses firms.
Alternative solutions
There are two accounting methods to be adopted.
Accrual accounting method and the cash accounting method
Under the Accrual method, all transactions are updated immediately they have occurred (Gibson & TMW Media Group, 2009).
It disregards the time when there is the delivery of the item or the item is paid for.
cash system is where you update transactions when the delivery has been made or the payment has been remitted.
To find the right method for a business we could set criteria for these businesses and see if there will be changes in the profitability in the next fiscal year (Chesla, 2000).
Criteria of choosing from the alternatives
they should have a turnover of less than three million dollars per year.
they should have a tax levy pay of not more than a million dollars per annum.
we can consider any enterprise that could run on a cash system or the Accrual system regardless of the tax figure that it is subject to.
Fourth consideration - firms that have always made their tax levies on either the basis of cash system entirely or the accrual system entirely.
consider enterprises on the basis of preferences to avoid a contradictory situation with the clients on the basis of handling their accounts
Conducting the research
Selected firms will be classified for their transaction to be considered under the cash or the Accrual systems.
For the fiscal year, all their transactions will strictly be in the above criteria, this should be done for the next three fiscal years.
At the end of three years’ period , the businesses that have been under evaluation will be investigated as whether existing or demolished. How they shall be fairing and coping up with the tax system (Hubbard, 2007).
The system yielding a greater percentage of success will become the guiding principle
Evaluation of alternatives
Accrual method is a is good accounting method as it will provide the exact information on what is going on and currently affecting the business (Aristotle et al, 2011).
However, it may also provide some wrong information on the real and current financial situation of the company.
Yet, it can be useful if the any payment any transaction that is not yet completed is identified and excluded in any financial planning or analysis.
Cash method is the best alternative as it provides an actual account, and any plan or analyses can be based on this information. Budgeting of any company or finances always works well with the cash system model (Chesla, 2000).
Findings
Many companies employ both the Accrual and the cash system method of accounting.
Accrual method is mostly used in making targets and analyzing the future financial status and position of the company.
The cash system is also used in making analysis of the current and exact time. This cannot be used to make projection (Chesla, 2000).
The two accounting methods can be used effectively side by side to provide a solution to all existing accounting problems.
Conclusion:
Since, more than one accounting procedure turns out to be more costly compared to one accounting system, the best solution is the use of only the cash system accounting method for all the daily accounting activities (Hubbard, 2007).
However, both the accounting methods can be used to provide all the needed information for making projections related to future growth.
Accrual method should be used mostly for making projections.
This method has been tested and verified by some top multinational companies that use both the accounting methods for financial analysis.
References:
Chesla, E. L. (2000). Practical solutions for everyday work problems. New York: Learning Express.
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.
Aristotle, ., Mayhew, R., Mirhady, D. C., & Anaximenes, . (2011). Problems. Cambridge, Mass: Harvard University Press.
