...Case Study: Cash Basis or Accrual Basis? Selina Sanchez Acc 497 February 11, 2016 Donald Autrey Case Study: Cash Basis or Accrual Basis? Use FARS to identify what standard-setters have said as to the superiority of accrual accounting relative to a cash basis. Do you agree with the justification offered for accrual accounting? Explain. The basic goals have not been completely supported in their statements. Accrual accounting and cash basis both have a reason to be in grated. Accrual accounting is favored by FASB as it shows a more specific accounting transcript than cash basis accounting does. Bonus Question: Identify which accounting pronouncement specifically observes: “This Statement relies on a basic premise of generally accepted accounting principles that accrual accounting provides more relevant and useful information than does cash basis accounting.” “This statement relies on a basic premise of generally accepted accounting principles that accrued accounting provides more relevant and useful information than does cash basis” is located on the FASB pronouncement Summary of Statement No. 106 discussing the “Employers’ Accounting for Postretirement Benefits Other Than Pensions Accounting Theory Issue: When is a “cash-basis method” used within the accounting literature? Do you view such a method as complementary or preferable to accrual accounting in the settings you have identified? The cash-basis-method is only used for small...
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...way that reflects the operational structure of the organisation and yet their varying objectives (Barton, 2000). There exist two main schools of thought on the nature of accounting in the public sector, each of which is formulated by the view of the role of the public sector within the economy (Evans, 1995). The traditional method of accounting within public sector organisations has often advocated the use of the cash basis of accounting, with larger emphasis rather placed on compliance with the rules and regulations governing the sector (Wynne, 2003). However, weaknesses in public sector management have brought to the fore the importance of efficiency and hence the adoption of the accrual method of accounting within the public sector. According to Alexander, Britton and Jorissen (2011), the accrual basis of accounting recognises income and expenditure from transactions at the point of occurrence rather than when the cash for the transactions is either received or paid. On the other hand, the cash basis of accounting is more concerned with when the actual cash is received for the transactions. As such, the divide in opinion in public...
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...Chapter 1: Introduction 1.1 Prelude: As globalization and international trade impact societies, non-government organizations have become increasingly influential in world affairs. Now, there are about twelve thousand NGOs in all over the world operating in most countries. These organizations are not directly affiliated with any national government, but often have a significant Impact on the social, economy and political activity of the country or region involved. So, we can say that NGOs have become major players in the field of international and national development. Bangladesh has largely failed to assist the poor or reduce poverty because of limited resources and planning, while NGOs have grown dramatically, but it ostensibly fails to fill this gap. There are more and bigger NGOs here than in any other country of equivalent size. Here, NGOs have mainly functioned to service the needs of the landless, usually assisted by foreign donor funding as a counterpoint to the state's efforts. Besides all these, in the field of NGO, Financial Reporting process and application of accounting is disgraceful. NGOs in Bangladesh have increasingly become subject to question and criticism from the government, political parties, intellectuals and the public in genus for misuse of funds, gender discrimination, and nepotism. Absence of proper guidelines in preparing financial statements and reports makes it more complex. The government of Bangladesh doesn’t have...
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...Policy Research Institute, Ministry of Finance, Japan, Public Policy Review, Vol.8, No.1, June 2012 45 Public Sector Accounting - An Interdisciplinary Field Involving Accounting, Economics, and Jurisprudence 1 Ryosuke Tao Research Fellow, Institute of Administrative Management Abstract Public sector accounting has recently been improved. Currently, there are requirements to disclose stock information in addition to the flow information presented in budget statements or accounts statements. Public sectors have prepared and disclosed their financial statements (including balance sheets and income statements) based on business accounting approaches. Moreover, as a matter of policy, the government tends to prepare and disclose cost information along with the financial statements for the individual ministries and governmental agencies. The objectives of clarifying the fiscal conditions in a state through the preparation and disclosure of financial statements are to fulfill the state’s accountability to its citizenry and market participants and to optimize and enhance the efficiency of its fiscal activities. Most importantly, the improved information should contribute to democratic decisions on public finance. A perspective different from the business accounting is that public sector accounting places more emphasis on inter-generational fairness. With respect to the inter-generational benefits and burdens, however, various factors must be considered, and the differences between...
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...The Accounting Cycle and Accrual Accounting Concepts Accounting Information System | Journal, Ledger Accounts, and Trial Balance | Cash-Basis Versus Accrual-Basis Accounting | Accrual Accounting Concepts | Adjusting Entries, Adjusted Trial Balance, and Closing | Self-Assessment After learning about the income statement and the balance sheet in Chapters 1 and 2, we are now being introduced to the accounting cycle and certain underlying accounting concepts that influence the contents of those two financial statements. | | Accounting Information System | | Just what, exactly, is the accounting information system? Is it a room full of computers and papers? Not necessarily. The accounting information system consists of data, papers to support the data, machines to process the data, and most importantly, people to report the resulting information to those who make decisions based on such information. Every organization that is engaged in transactions needs an accounting information system. This brings us to an important term used in accounting—a transaction! But what, exactly, is a transaction? Identifying Business Transactions A transaction is any event that involves an exchange or consumption of resources. A transaction could take place between a company and external parties (e.g., purchase of raw materials from suppliers or sale of merchandise to customers), or within a company itself (e.g., a company uses supplies that were purchased at a previous date and were...
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...Accounting Processes’ and Financial Statements The purpose of this paper is to provide a foundation of knowledge for accounting and financial bookkeeping. To accomplish this, I will focus on two areas. First, I will provide some general definitions for common accounting processes and ideas; namely, generally accepted accounting principles, double entry accounting, historical cost, accrual basis versus cash basis accounting, and current assets and liabilities versus non-current items. Second, I will examine recent financial statements for three companies (i.e. Samsung, Lockheed Martin, and RTL Group), specifically their balance sheet, income statement, and statement of cash flow. This examination will include a prediction of future company trends concluding with which ever imparts a better sight picture for future financial and company growth, net income versus cash flow. Defining the aforementioned terms and examining our three companies will demonstrate some core foundational accounting principles and terminology. The term ‘generally accepted accounting principles’ (i.e. GAAP) has a very specific meaning for accountants and auditors. A code of professional conduct prohibits accountants from making statements that would imply or assert financial statements or other financial data conform to ‘generally accepted accounting principles,’ unless they actually fell within those principles promulgated by a body designated...
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...Accrual Accounting Concepts The Navigator • Scan Study Objectives • Read Feature Story • Read Preview • Read text and answer Before You Go On p. 169 p. 174 p. 183 • Work Using the Decision Toolkit • Review Summary of Study Objectives • Work Demonstration Problem • Answer Self-Study Questions • Complete Assignments Feature Story What Was Your Profit? The accuracy of the financial reporting system depends on answers to a few fundamental questions. At what point has revenue been earned? At what point is the earnings process complete? When have expenses really been incurred? During the 1990s' boom in the stock prices of dot-com companies, many dot-com companies earned most of their revenue from selling advertising space on their Web sites. To boost reported revenue, some dot-coms began swapping web-site ad space. Company A would put an ad for its website on company B's website, and company B would put an ad for its website on company A's website. No money ever changed hands, but each company recorded revenue (for the value of the space that it gave up on its site). This practice did little to boost net income and resulted in no additional cash flow—but it did boost reported revenue. Regulators eventually put an end to the practice. Another type of transgression results from companies recording revenue or expenses in the wrong year. In fact, shifting revenues and expenses is one of the most common abuses of financial accounting. Xerox recently...
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...Financial Statements: Foundational Accounting Principles and Terminology Shane R. Wagner TUI University Module 1 Case Study 29 August 2010 Abstract This paper will discuss the common fundamental accounting principles and analyze the financial statements of three major businesses. A basic understanding of the General Accepted Accounting Principles and the standards established within these practices, allow for investors to obtain an accurate snapshot of the financial health of a business. The different methods of documenting both current and future transactions, can have an impact on the information portrayed by the financial statements of an organization. In addition, the basic format of the financial statements can disclose additional considerations of the business, as will be discussed in the analysis of three major businesses within this paper. Information for the analysis portion was retrieved from the financial statements included in the assignment. Keywords: Accrual Basis Accounting; Cost Basis Accounting; Current Assets and Liabilities; Double Entry Accounting; Financial Accounting Standards Board (FASB); General Accepted Accounting Principles (GAAP); Historic Cost; Non-current Items; Security Exchange Commission (SEC); Financial Statements: Foundational Accounting Principles and Terminology Introduction The basic of understanding of an organizations financial statement requires one to be familiar with fundamental accounting principles...
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...Legality and Ethicality in Financial Reporting In week3, we are looking into the case of Excello Telecommunications, and study their behavior base on the knowledge of legality and ethicality in financial reporting. Excello Telecommunications has been successful in the past. However, in recent years, the company is facing more and more competitors. For the first in the company’s history, the earnings estimate won’t be met. This means nervous investors and drop in value of Excello stocks. And the top management worries about the effect on bonus and stock options. Someone needs to find a solution to steer the situation around. This is when CFO Terry Reed notices a sale on December 20, 2010. Data Equipment Systems made a purchase of $1.2 million, but requested that no delivery should be made until January 11, 2011. By previous procedures, all sales are recorded when the deliveries are made. Only this time the recording of the transaction, if made by the end of 2010, would solve the problems. Reed consulted with the controller Marty Fuller, and called the accounting department for a solution. Reed’s bottom line is very straight forward: find a creative way to record the sales to Data Equipment Systems before December 31, 2010. Legal Issues and Applicable Laws The accounting team must consider the actions that will take place under the restrictions of laws and regulations. In the accounting profession, the regulations included GAAP (Generally Accepted Accounting Principles), SOX...
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...3 Adjusting the Accounts Chapter STUDY OBJECTIVES After studying this chapter, you should be able to: 1 Explain the time period assumption. 2 Explain the accrual basis of accounting. 3 Explain the reasons for adjusting entries. 4 Identify the major types of adjusting entries. 5 Prepare adjusting entries for deferrals. 6 Prepare adjusting entries for accruals. 7 Describe the nature and purpose of an adjusted trial balance. The Navigator ✓ The Navigator Scan Study Objectives Read Feature Story Read Preview Work Demonstration Problem Review Summary of Study Objectives Answer Self-Study Questions Complete Assignments ■ ■ ■ Read text and answer Before You Go On p. 97 ■ p. 104 ■ p. 109 ■ p. 114 ■ ■ ■ ■ ■ ✓ Feature Story WHAT WAS YOUR PROFIT? The accuracy of the financial reporting system depends on answers to a few fundamental questions: At what point has revenue been earned? At what point is the earnings process complete? When have expenses really been incurred? During the 1990s’ boom in the stock prices of dot-com companies, many dot-coms earned most of their revenue from selling advertising space on their websites. To boost reported revenue, some dot-coms began swapping website ad space. Company A would put an ad for its website on company B’s website, and company B would put an ad for its website on company A’s website. No money changed hands, but each company recorded revenue (for the value of the space that it gave the other company on its site). This practice...
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...Accountancy Jump to: navigation, search Accountancy (profession)[1] or accounting (methodology) is the measurement, statement or provision of assurance about financial information primarily used by managers, investors, tax authorities and other decision makers to make resource allocation decisions within companies, organizations, and public agencies. The terms derive from the use of financial accounts. Accounting is the discipline of measuring, communicating and interpreting financial activity. Accounting is also widely referred to as the "language of business".[2] Financial accounting is one branch of accounting and historically has involved processes by which financial information about a business is recorded, classified, summarised, interpreted, and communicated; for public companies, this information is generally publicly-accessible. By contrast management accounting information is used within an organisation and is usually confidential and accessible only to a small group, mostly decision-makers. Tax Accounting is the accounting needed to comply with jurisdictional tax regulations. Practitioners of accountancy are known as accountants. There are many professional bodies for accountants throughout the world. Many allow their members to use titles indicating their membership or qualification level. Examples are Chartered Certified Accountant (ACCA or FCCA), Chartered Accountant (FCA, CA or ACA), Management Accountant (ACMA, FCMA or AICWA), Certified Public Accountant...
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...ACCT1501 Chapter 1 – Introduction to Financial Accounting Use and Preparation of Accounting * Financial accounting has value because the information it produces is used in a variety of ways. * People study accounting to learn how to use information effectively and do their jobs better. * Accounting information is produced by a large set of people, activities and computers. To be effective users of the information, people need to know how and why the information is prepared. * An accountant’s expertise is all about how and why. Financial Accounting * Accounting is a process of identifying, measuring and communicating economic information to allow informed decisions by the users of that information. There are two types of accounting systems: * Financial accounting systems – * This is where periodic financial statements are provided to external decision-makers (such as investors, creditors and customers, such as government, small and large businesses). * Financial accounting measures an enterprise’s performance over time and its position at a point in time. * Financial performance means generating new resources from day-to-day operations over a period of time. * Financial position is the enterprise’s set of financial resources and obligations at a point in time. * Financial statements are reports which describe financial performance and position and help to measure whether the enterprise is in a...
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...ACT 4000 Week 2 Materials TABLE OF CONTENTS Learning Objectives..................................................................................................... 2 Basic Accounting Concepts ....................................................................................... 3 Cash versus Accrual Accounting................................................................................7 Qualitative Characteristics of Accounting Information ...........................................9 Valuations on the Balance Sheet ................................................................................11 Effects of Transactions on Financial Statements ......................................................13 Activity #1 ....................................................................................................................19 Activity #2 ....................................................................................................................20 Activity #3 ....................................................................................................................21 Activity #4 ....................................................................................................................22 Activity #5 ....................................................................................................................23 Activity #6 ....................................................................................................................24...
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...Relevance Concept: Information should be relevant to the decision making needs of the user. Information is relevant if it helps users of the financial statements in predicting future trends of the business (Predictive Value) or confirming or correcting any past predictions they have made (Confirmatory Value). Same piece of information which assists users in confirming their past predictions may also be helpful in forming future forecasts. Reliability Concept: Information is reliable if a user can depend upon it to be materially accurate and if it faithfully represents the information that it purports to present. Significant misstatements or omissions in financial statements reduce the reliability of information contained in them. Matching Concept: Matching Principle requires that expenses incurred by an organization must be charged to the income statement in the accounting period in which the revenue, to which those expenses relate, is earned. Prior to the application of the matching principle, expenses were charged to the income statement in the accounting period in which they were paid irrespective of whether they relate to the revenue earned during that period. This resulted in non recognition of expenses incurred but not paid for during an accounting period (i.e. accrued expenses) and the charge to income statement of expenses paid in respect of future periods (i.e. prepaid expenses). Application of matching principle results in the deferral of prepaid expenses...
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...CHAPTER 3 ADJUSTING THE ACCOUNTS SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY Item | SO | BT | Item | SO | BT | Item | SO | BT | Item | SO | BT | Item | SO | BT | Exercises | 1. | 1 | AP | 10. | 2 | AP | 19. | 2,3 | AP | 28. | 2,3 | AP | *37. | 5 | AP | 2. | 1 | AP | 11. | 2 | AP | 20. | 2,3 | AP | 29. | 2,3,4 | AP | *38. | 5 | AP | 3. | 1 | AP | 12. | 2 | AP | 21. | 2,3 | AP | 30. | 2,3,4 | AP | *39. | 5 | AP | 4. | 1 | AP | 13. | 2,3 | C | 22. | 2,3 | AP | 31. | 3 | AP | *40. | 5 | AP | 5. | 1 | AP | 14. | 2,3 | C | 23. | 2,3 | AP | 32. | 3 | AP | *41. | 5 | AP | 6. | 1 | AP | 15. | 2,3 | AN | 24. | 2,3 | AP | 33. | 3 | AP | | | | 7. | 1,2 | AP | 16. | 2,3 | AN | 25. | 2,3 | AP | 34. | 3 | AP | | | | 8. | 1,2 | AP | 17. | 2,3 | AP | 26. | 2,3 | AP | 35. | 4 | AP | | | | 9. | 1,2 | AP | 18. | 2,3 | AP | 27. | 2,3 | AP | 36. | 4 | AP | | | | Note: C = Comprehension AN = Analysis AP = Application * This topic is dealt with in an Appendix to the chapter. SUMMARY OF QUESTIONS BY LEVEL OF DIFFICULTY (LOD) Item | SO | LOD | Item | SO | LOD | Item | SO | LOD | Item | SO | LOD | Item | SO | LOD | Exercises | 1. | 1 | M | 10. | 2 | E | 19. | 2,3 | E | 28. | 2,3 | H | *37. | 5 | M | 2. | 1 | E | 11. | 2 | M | 20. | 2,3 | E | 29. | 2,3,4 | H | *38. | 5 | H | 3. | 1 | M | 12. | 2 | H | 21. | 2,3 | E | 30. | 2,3,4 | H | *39. | 5 | H | 4. | 1 | E | 13. | 2,3 | H | 22. | 2,3 | M | 31. | 3 | E | *40....
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