Accrual Accounting vs Cash

5945 Words24 Pages
Is Accrual Basis More Reliable than Cash Basis Accounting? Currently, accrual based accounting is the most widely accepted standard for accounting valuations. Nevertheless, it is often argued, on theoretical grounds, that a cash basis approach is much more reliable to users. Our study focuses on the question of whether the accrual basis of accounting more reliable than the cash basis of accounting, where we compare the theoretical rational of interviewed industry professionals with theory. In order for us to better understand whether the cash basis of accounting or accrual basis of accounting provides more reliable information, we conducted three interviews with industry professionals. In general, we did not want to steer the comments and opinions of the professionals we interviewed, so we merely posed the question “Is accrual basis accounting or cash basis accounting more reliable? Why?” The first interview conducted was with a C.F.O. of a company who provides outsourcing services which include financial record keeping, mutual fund accounting and advisory for corporations. After conducting our interview, the professional believes that the reliability of financial reporting should reflect the flow of resources or economic value of the company rather than focusing on the flow of cash alone. He mentioned that the valuation of assets and operating activities under cash basis accounting cannot fulfill the objective of reliability because the valuation of asset and recognition of revenue and expenses are affected by the timing of the payments. He strongly believes that the matching principle under accrual accounting could faithfully present the performance of a company by matching expense to associated revenue. The second interview conducted was with a CGA with over 10 years of experience. His major duties include preparing the financial reports for small business
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