Cash to Accrual Basis

Topics: Generally Accepted Accounting Principles, Financial statements, Balance sheet Pages: 2 (692 words) Published: March 25, 2012
According to Malaysian Institute of Accountants (MIA), along with accrual accounting, it is recommended that the public sector move to accrual accounting in order to optimize the benefits of the shift from cash to accruals. Malaysia is targeting 2016 to fully adopt accrual accounting. Cash accounting records the cash effects of a transaction in the period in which they occur. Under this regime monies paid and received are recorded in the financial statements of an organization. Cash accounting makes little or no reference to the liabilities that an organization will be required to meet in future, nor does it recognize the benefits that will be obtained from purchased assets over a period of time. Financial statements prepared on a cash basis therefore give imited information of use to financial managers and decision makers. In practice, most countries still use cash accounting to produce periodical balance sheet information. Accrual accouting is a method of recording financial transactions where the full characteristics of those transactions are recorded in the period to which they related. Accrual accounting facilitates better planning, financial management and decision making in government as well as a robust and accepted way of measuring the economy, efficiency and effectiveness of public policies. One of the objectives of financial reporting is to allow accurate comparison to be made between different organizations. By using accrual basis for public financial statements, there is increased comparability of an individual organization on a period by period basis. Financial reporting should demonstrate the accountability of the government or unit for the financial affairs and resources entrusted to it, and provide information useful for decision making by: (IFAC PSC Study 1 paragraph 63) a. Indicating whether resources were obtained and used in accordance with the legally adopted budget. b. Indicating whether resources were obtained and utilized in accordance...
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