Compare Cash-Basis & Accrual-Basis   Term Paper ID:37492 Click to get this paper

Essay Subject: Brief review of the differecnes between cash-basis financial accounting and accrual-basis financial accounting... More...

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Paper Abstract: Brief review of the differences between cash-basis financial accounting and accrual-basis financial accounting. Differences between accountants and financial managers regarding treatment of cash is also discussed. Paper Introduction: comparing and contrasting cash-basis financial accounting and accrual-basisfinancial accounting Introduction This paper compares and contrasts cash-basis financial accounting andaccrual-basis accounting Additionally differences between accountants andfinancial managers with respect to the treatment of cash are considered Comparing and Contrasting Cash-Basis Financial Accounting and Accrual-Basis Financial Accounting The conceptual difference between cash-basis financial accounting andaccrual-basis financial accounting centers on the recognition of income andexpenses Within this context a differentiation is made in accrual-basisfinancial accounting between a income and expenses and b receipts anddisbursements Belkaoui Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. G. In eachcase, customers were required to make a 1 percent down payment on thework. The payments by the company to materialsuppliers and to employees (labor) would be recorded at the time paid toshow the decrease in cash in an asset account, with an offsetting entry toaccounts payable (materials) and labor costs. The customers pay the balance on their contracts in two equalinstallments. Income in accrual-basis accounting refersto earnings derived from the sale of a product or service. Within this context, a differentiation is made in accrual-basisfinancial accounting between (a) income and expenses and (b) receipts anddisbursements (Belkaoui, 2 4). V. The first payment occurred in March 2 6 and the secondpayment occurred in April 2 6. Accounting theory. In accrual-basis accounting, an effort is made to correctly matchincome and expenses within the financial reporting period when suchactivities occur. Expenses are deductedfrom income to derive net income (Williams, Haka, Bettner, & Carcello,2 4). Receipts, incontrast, refer to the payment for the sale of a good or service. To illustrate the differences in income and expense recognitionbetween cash-basis financial accounting and accrual-basis financialaccounting, consider the hypothetical situations of two residentialremodeling contractors. New York: Thompson Learning.Bremser, W. Expensesin accrual-basis accounting refer to the costs that are associated withproviding the product or the service to a customer. The contractor using cash-basis financial accounting would also show anet income on the remodeling contract of $1,25 . comparing and contrasting cash-basis financial accounting and accrual-basisfinancial accounting Introduction This paper compares and contrasts cash-basis financial accounting andaccrual-basis accounting. (5th ed.). Expenses and disbursements alsoare recognized simultaneously at the time when the selling company pays forthe resources used in providing a product or a service to a customer(Bremser, 1992). A look at the modified cash basis. Financial managers treat cash as an indicator of liquidity. Additionally differences between accountants andfinancial managers with respect to the treatment of cash were considered. Thus,financial managers tend to focus on the timing of cash flows to determineborrowing needs of firms. The paymentsfrom the customer would be recorded at the time received to show theincrease in cash in an asset account, with an offsetting entry to recordunearned income (down payment) or reduction in accounts receivable(additional payments on account). Assume further that the required down payments were made on thesigning of the contracts in January 2 6. (1992, February). Each contractorpaid for the labor in the months in which the work was performed, and eachcontractor paid for the materials in the month following the month in whichthey were used. Rather, cash received and cashdisbursed are recognized in the reporting periods when cash receipts andcash disbursements occur regardless of whether such receipts anddisbursements are related to one another with respect to specific sales. (12the ed.). Summary This paper compared and contrasted cash-basis financial accounting andaccrual-basis accounting. In cash-basis financial accounting suchdifferentiation is not relevant. (2 4). By period, however, thenet income would occur over a four-month period, as opposed to the two-month period applicable in the accrual-basis accounting method. New York: McGraw-Hill. Thecontractor using cash-basis financial accounting would record net income asfollows:|Item |January 2 6 |February 2 6 |March 2 6 |April 2 6 ||Cash-In |$5 | |$2,25 |$2,25 ||Cash-Out | |-$75 |-$1,875 |-$1,125 ||Net Income |$5 |-$75 |$375 |$1,125 | Variations in the Treatment of Cash by Accountants and Financial Managers Accountants treat cash as an asset. Suppose that each contractor agreed with differentcustomers in January 2 6 to perform similar jobs involving the remodelingof residential kitchens, the contract values of which were $5, . In contrast to the practices in accrual-basis accounting, incomeand receipts are recognized simultaneously at the time payment is receivedfor a sale of a good or service is made. With respect to income, expenses, and net income, the contractor usingaccrual-basis financial accounting would recognize the following:|Item |February 2 6 |March 2 6 ||Income (Sales) |$2,5 |$2,5 ||Expenses |-$1,875 |-$1,875 ||Net Income |$625 |$625 | As the data presented in the table indicate, the company will recordnet income on the residential remodeling contract of $1,25 . CPA Journal, 62, 49-52.Williams, J. Financial Accounting. Additionally differences between accountants andfinancial managers with respect to the treatment of cash are considered. F., Bettner, M. Comparing and Contrasting Cash-Basis Financial Accounting and Accrual-Basis Financial Accounting The conceptual difference between cash-basis financial accounting andaccrual-basis financial accounting centers on the recognition of income andexpenses. Assume further that the costs to the contractors for materials foreach job were $2,25 and that the labor costs for each job were $1,5 .Work on each job occurred in February and March 2 6, with material andlabor used in equal amounts in both February and March. In contrast, in cash-basis accounting no effort is madeto match income and expenses to the period in which a sale is made or whendelivery of a product or a service occurs. S., & Carcello, J. Total assets (of which cash is apart) less total liabilities indicate the net worth (equity value) of thefirm. (2 4). R., Haka, S. ReferencesBelkaoui, A. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.

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