Acc 280 Week 3

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E3-2A (a) What is the difference between accrual-basis accounting and cash-basis accounting? Accrual Basis accounting involves recording corporations income the date that the business bills its clientele for the services that were provided. Furthermore, corporations also record any accounts payable the date that they were billed for products that they consumed. Cash basis reports all income the date that they received payment rather than the date they billed consumers for account receivable. Cash basis also records accounts payable the date that it was paid rather than the billed date. Those are the two main differences on how it reports monetary data, other differences are the type of businesses that would utilize the two different accounting basis. Smaller business would most likely use cash basis simply because it is easier to manage. One major benefit to cash basis is that it identifies more clearly cash on hand, but a major down side is that it paints a bad picture of the company’s services that it performs. It paints a bad picture because the business may collect zero revenues for a month and pay accounts payable during that month showing a loss of revenue while the next month they may pay zero accounts payable but receive two month’s worth of accounts payable, this would indicate that the company had higher than realistic earnings. Accrual basis accounting paints a better picture of how a company profits or losses over a indicated time period, but fails to state clearly the cash on hand. E3-2B (b) Why would politicians prefer the cash basis over the accrual basis? The Government prefers to use the cash basis over the accrual basis for many reasons but none more the how to account for public unions workers’ pensions. The Government does not want to report their pensions while the employee is working because politicians believe that benefits
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