Department of Accounting and Finance
BA (Hons) Accounting
BSc (Hons) International Finance
BSc (Hons) Accounting and Finance
Financial Accounting 2 (AAF005-2)
Referral Assessment 1
Academic Year 2012-13
Student ID: 112368
* Introduction and Background
* Cash basis accounting
* Accrual basis accounting
* Financial reporting
* Conclusions, recommendations, or implications for the future.
* Cash Accounting vs Accrual Accounting
According to Omenika (2008), the basis of accounting either it be cash or accrual, is a set of rules and principles that determine the recognition of expenses and revenues in exchange transactions. Many business before starting to record business transactions, must decide whether to use cash-basis or accrual accounting. The crucial difference between these two accounting processes is in how you record your cash transactions. Within that simple difference lays a lot of room for error or manipulation. In fact, many of the major corporations involved in financial scandals have gotten in trouble because of their accounting method that was used or reedited. Even though the Generally Accepted Accounting Principles (GAAP) approves the accrual basis of accounting and not the cash basis of accounting, ‘It is sometimes argued that cash flow accounting provides more useful information for users than accrual accounting and therefore should be the primary basis on which the financial results of companies are reported.’ When comparing transactions the difference between cash and accrual accounting can be huge reason being for the arguments back and forth on which of the methods are more useful. These methods differ only in the timing of when sales and purchases are credited or debited to your account but the effect it has on the business could be fatal because the finical report differs and this simple decision of choosing...
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