...Accrual vs. Cash Basis Accounting XXXXXXXXXX ACC290 XXXXX, XX, XXXX XXXXXX XXXXXX Introduction In business, there are many different forms and standards to accounting. These standards are governed by rules, laws, regulations and accurate accountability of a particular business account. There are some general differences between general and commercial basis accounting principles, also differences between accrual and cash basis accounting. Those differences will be looked at here. General and Commercial Basis Accounting Principles According to Wikipedia.com, generally accepted accounting principles (GAAP) refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards or standard accounting practice. These include the standards, conventions, and rules that accountants follow in recording and summarizing and in the preparation of financial statements. Hubpages.com discusses commercial accounting, also known as profit accounting, defining that it performs primarily by profit and loss. The reporting for a profit organization is directed to the investors. ("The Principles Of Commercial Accounting And Fund Accounting", 2011). Accrual vs. Cash Basis Accounting According to the readings, accrual basis accounting is defined as in which companies record, in the periods in which the events occur, transactions that change a company's financial statements, even if cash was not exchanged. In other words...
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...International Financial Reporting Standards are a set of accounting standards developed by the International Accounting Standards Board. They are becoming the global standard for the preparation of public company financial statements (AICPA). The IFRS are currently implemented in ninety countries throughout Europe, Asia, and South America, and in coming years, the United States of America may added to the list. JPMorgan Chase, America’s largest bank, has shown hesitation of implementing the judgment-based International Financial Reporting Standards for several reasons, a main one being the complexity of switching a multi-trillion dollar company’s accounting standards. Specifically, the difference in reporting of derivative assets from Generally Accepted Accounting Principles to International Financial Reporting Standards is one of the main challenges. SNL Financial, a data collection company, ranks the world’s banks based on their assets, which are reported by each firm according to their current method of accounting reporting. In January of 2014, they ranked JPMorgan Chase as the sixth largest bank in the world, with $2.463 trillion in assets. (PRWeb). The largest bank in the world was reported to be the Industrial & Commercial Bank of China, with $3.062 trillion in assets. The difference between the two banks, is that JPMorgan Chase reports assets under U.S. Generally Accepted Accounting Principles, while the Industrial & Commercial Bank of China uses International Financial Reporting...
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...Accrual Financing Accounting is an important aspect of every business or organization in the world today. Without proper accounting methods and principles it would be almost impossible for any entity to become profitable while keeping track of its finances. Accrual basis accounting accounts for revenue when it is earned and records it in the period in which the transaction occurred. Cash basis accounting only accounts for revenue when cash is received for services provided or goods delivered, and it records those transactions during the period cash was received (Wiley, 2012). Accrual basis accounting is usually prescribed and generally more accepted than cash basis accounting on a commercial setting. Accrual accounting gives you a more accurate view of financial transactions within an organization as it mandates that businesses record and account for revenue once it is earned rather than when payment is received. By conducting accrual accounting, businesses allows investors and creditors the ability to better understand the stability and profitability of the organization. The more sound the accounting practices are within and entity, the more accurate the financial reporting will be. Cash basis accounting is not in accordance with generally accepted accounting principles (GAAP), (Wiley, 2012). Cash basis accounting, unlike accrual accounting, does not present a clear understanding of the financial transactions of an organization. For example, if I was the owner...
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...Long-Term Relationship Principles of Federal Acquisition Assess how the different approaches to contract financing can impact the company. Contracting Officers provide financing only to the extent needed for prompt and efficient performance, considering the availability of private financing and the impact of predelivery expenditures and product lead times on working capital. There are varieties of available methods: (1) progress payments, (2) advance payments, (3) performance-based payments, (4) commercial items purchase financing, and (5) other methods, such as private financing and Government loans guarantee. To minimize risk to the Government, the regulations also provide that when a contractor requests financing, the Contracting Officer should consider the financing methods in the following order of preference: (a) private financing without Government guarantees, (b) “customary” contract financing, (c) loan guarantees, (d) “unusual” contract financing, and (e) advance payments. Progress Payments: The Government will make progress payments to the contractor when requested as work progresses, but not more frequently than monthly, in amounts of $2,5000 or more approved by the Contractor Officer. (Arnavas, 2003) Advance Payments: are advances of money by the Government to a prime contractor before, in anticipation of, and for the purpose of complete performance under one or more contracts. They are expected to be liquidated from payments due to the contractor...
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...Week Four Individual Paper XXX ACC/290 September XX, 2012 XXX Week Four Individual Paper The current reading supports that commercial accounting and generally accepted accounting principles, strongly advise the accrual basis of accounting versus the cash basis of accounting. The accrual basis of accounting confirms that when transactions alter a business’s financial statements they are recorded during the period that the events happened, regardless if there was an exchange of cash or not. An example of the accrual basis would be businesses who recognize revenues earned, regardless if cash was received or not. The accrual basis also recognize when expenses are incurred, even if cash was not paid. The other potential option to the accrual basis is the cash basis. The major difference between the two accounting basis’, is that under the cash basis a business will record their revenue only at the time that cash is received. Additionally, they record expenses only when cash is received. For these reasons, the cash basis of accounting is not allowed under generally accepted accounting principles. This is due to the fact that the cash basis does not record revenue when it is earned, and therefore violates the principle of revenue recognition. At the same time, the cash basis does not allow for recording the expenses as they occur, which is a violation of the matching principle. The cash basis measures can mislead or misrepresent the true financial picture of a...
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...RMIT International University Vietnam Bachelor of Business (Accountancy) Assignment Cover Page | Subject Code: |ACCT2163 | | | | |Subject Name: |Accounting Theory | | | | |Location & Campus (SGS or HN) where you study: |RMIT Vietnam | |Title of Assignment: |Individual assignment | | | | |Student name: |Pham Thanh Huong | |Student Number: |S3275153 | | | | |Teachers Name: ...
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...Accrual versus Cash Basis Accounting Sandra Fletcher ACC/290 March 6th, 2012 Bryan Carey Accrual versus Cash Basis Accounting Commercial accounting and general accepted accounting principles, generally prescribe the accrual basis of accounting over the cash basis. Because there are many benefits of the accrual basis accounting including, forecasting and invoices recognition this method is most used. Accrual basis accounting means a company recognizes revenue when earned while cash is still pending or not yet received. The matching principle is used to recognize expenses when incurred even when the cash is not yet received. Under the cash basis accounting, companies record revenue only when the cash is received and record expenses only when the cash is paid out. The cash basis of accounting is prohibited under the generally accepted accounting principles because it does not record revenue when revenue is earned. In response this violates the revenue recognition principle and it does not record expenses when incurred, in turn violates the matching principle. Timing plays a large role in these practices. One key method of accounting is recognizing income and expenses. The basic difference between cash and accrual methods of accounting is related to when the revenue and expenses are recognized. Cash basis recognizes revenue when money comes in and recognizes expenses when money is paid out. Cash basis doesn’t recognize accounts receivable or payable. Hence, the difference...
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...The aim of this essay is to help company have deep awareness about dividend paid out of profit through discussing about what consist of profit, what is profit in legislation, the rules of case law that companies should obey to pay dividend legally and some relevance of accounting standard. This essay is divided into five parts. First of all, an introduction will be given. Then the confirmation and types of profit will be introduced. After that, this essay will interpret the rules of paying dividend depends on specific circumstances. Subsequently, the relevance of accounting standard will be offered. The last part is conclusion. Introduction In the current commercial world, earning profit is what the profit-oriented companies are seeking for. Accordingly, getting dividend is also what the investors are pursuing. Therefor it is essential and crucial to ascertain divisible profit and dividend to distribute to directors as the return for their investment. In the case of Spanish Prospecting Co Ltd, Fletcher Moulton LJ stated that profit indicates the comparison of the two states which are usually done by an interval of a year. This is taken as the term of profit in the view of legislation. While in accounting method profit is similar to income which according to AASB 118, is clarified as the inflow economic benefits which is in the forms of inflows of assets or decrease of liabilities during the period. Apparently, there are some differences between the two definitions of profit...
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...Three Accrual and Cash Basis Bi-Le’ DeRouen ACC/290 November 1, 2012 Dana Babin Week Three Accrual and Cash Basis Both cash basis of accounting and accrual basis of accounting can be the best of both worlds when using software. However to prefer one over the other to ensure the most advantage way can be a bit of a trick. Determining the differences between the two bases will be established. In the event an accountant decides accrual basis over cash basis he or she understand transactions that charge an organization’s financial statements are recorded in the time period in which the events occur, even if currency was not received. Receivables are recorded if payment is not received at the point of sale, revenues and expenses will be recorded in full, payables are recorded whether payment is made or not at the purchase time, and it is important to know that organizations and companies recognize expenses when incurred. Compared to cash basis accounting, companies and organizations record revenue only when currency is received, and also recording expense when cash is salaried. When using cash basis the accountant is not to record expense when incurred nor is he or she to record revenue when earned. The cash basis is prohibited under (GAAP) generally accepted accounting principles (“Understanding Cash and Accrual Basis Accounting “, 2012). Cash basis can be quicker and easier to use versus accrual. It is very simple, when funds are available to pay bills checks are only...
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...the company. This can be achieved in one of two ways; the cash basis method or the accrual basis method. The former captures expenses at the time they are paid and revenues when payment for goods or services is received. This is perhaps more familiar to those without knowledge of generally accepted accounting principles, because it more closely resembles personal financial management. Although credit and other fiscal instruments are used in some cases by individuals in their personal matters, most people generally manage personal financial statements on a cash basis. This method is effective for an individual, or perhaps a very small business with a small number of accounts and minimal transactions to record. There are, however, a number of disadvantages with this method; chiefly among these is the difficulty it causes businesses in associating operating expenses to revenues. Cash flows alone do not accurately reflect the operating activities of the organizations, and “The accrual basis of accounting overcomes the chief limitation of the cash basis – a possible mismatch of revenue and expenses.” (Ristea, Doros, Ioanas, & Morega, 2010, p. 208). When employing the accrual basis of accounting, financial events are recorded at the time they occur. For example; when a service is rendered to a customer, the company will generate an invoice and record this revenue at this time, even though it may be several weeks before payment is collected. This is done using the double entry bookkeeping...
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...In the accounting field, some of the primary goals are to record transactions, keep financial records, perform internal audits, report and analyze financial information to the management, and advise on taxation matters. Those who are involved in the accounting management field will usually have a good understanding of the accounting process by which data relative to a business are gathered, classified, and set forth in financial reports to fully understand the basis of accounting you must first understand its terminology. For this module case assignment, I will conduct some research on accounting terms and discuss the definitions of these accounting terms that relate to: Generally Accepted Accounting Principles, Contra-Asset Accounts, Historical Cost, Accrual Basis vs. Cash Basis Accounting, and Accounting Standards Codification, and explain why this concept is important to financial statements. I will also describe the general organization of three sets of financial statements from three companies, offer my opinion as to whether Net Income or Cash from Operating Activities is more useful for each of the three companies, predict the companies' future trends using Net Income or Cash Flows, and provide one additional conclusion about each company using information found in the annual report. According to Investopedia, the term, Generally Accepted Accounting Principles (GAAP), “is the common set of accounting principles, standards and procedures that companies use to compile their...
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...Chapter 3 Comparative International Accounting Systems and Practices * United States and United Kingdom as major countries in the context of the Anglo-Saxon culture area; * The Netherlands and Sweden as representatives of the Nordic countries; * Germany and Switzerland as representatives of the Germanic countries; * France and Italy as representatives of the developed Latin countries and; * Japan as a representative of the developed Asian countries. | ANGLO-SAXON ACCOUNTING * There is no doubt that Anglo-Saxon accounting can be distinguished from accounting in continental Europe. Asia. Latin America, and many other parts of the world. UNITED STATES * Influences on Accounting Development:In many ways, accounting in the United States and United Kingdom is very similar as might be expected given the importance of the historical and investment connections between the two countries. Just as the language and legal system were exported from the United Kingdom to the United States. | Cont.The securities markets are the dominant influence on accounting regulation in the United States. Dealings in securities and investor protection are regulated and enforced at the federal government level under the Securities Act of 1933 and the Securities Exchange Act of 1934, which were passed in response to the stock market crash of 1929 and subsequent financial crises. The Securities and Exchange Commission (SEC) was established with the legal authority to enforce the securities...
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...IMPOSSIBLE? The beginning of the 21st century was marked by major corporate collapses that jeopardised the reputation of the big Accounting and Auditing firms, questioning the very foundations of financial reporting and corporate governance. In a very short period of time, millions of dollars were wiped off the financial statements of major corporations, and the world saw giants collapse as large amounts of money were proven to exist only in paper. Even though fraud was found to be the constant variable in each case, the causes of the main collapses were determined to be related to corporate governance in general, and corrective measures were taken to improve that. However not many people questioned the fact that most of the money that existed only in paper was in those financial statements as a result of accounting practices that were legitimate and professionally accepted, meaning that auditors were not able to see the realities of these companies as they happened to be hidden under financial statements that strictly complied with accounting standards. The aim of this essay is to discuss why auditors are not able to read a company’s true financial position and performance from the financial statements since all they are able to do is state whether or not those statements comply with the Accounting Standards. The purpose of financial reporting and accounting information will be discussed, as well as the reason why the profession believes standards are necessary. It will also be proven...
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...Colleges and Schools, Western Association of Schools and Colleges, Association of Independent Schools and Colleges who have been approved by the Florida State Board of Independent Colleges and Universities, and Canadian Schools who have been approved by their provincial educational bodies. 2. The accounting education program must consist of 36 semester hours of upper division accounting courses including coverage of tax, auditing, financial, and cost accounting. The business education program must consist of 39 semester hours of upper division general business courses with some exceptions. One micro-economics, one macro-economics, one statistics, one business law, and one introduction to computers course may be lower division. As part of the general business hours, applicants are required to have a total of six semester hours of business law courses which must cover contracts, torts, and the Uniform Commercial Code. Excess upper division accounting courses may be used to meet the General Business requirement. Elementary accounting classes are never acceptable for credit. Courses for non-accounting majors and any MBA courses that are equivalent to elementary accounting are not accepted for this requirement. Examination Dates April - May July - August October - November January -...
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...IMPLICATIONS OF NEW TURKISH COMMERCIAL CODE ON CORPORATE GOVERNANCE AND IFRS CONVERSION IN TURKEY ACCOUNTING 7140 X, SPRING 2013 I have participated in preparing this paper and concur with its contents: Print name Signature Abstract Globalization brought many changes in many aspects of human life. The introduction of internet made the borders between countries slimmer and slimmer. E-commerce and other international commerce tools opened new cases and new issues to be discussed in the areas of finance, accounting, financial reporting, auditing and corporate governance. That is why, modifying, updating, and advancing the current Turkish Commercial Code (TCC) became a necessity in order to be capable of addressing the contemporary challenges of today’s world. To adapt these changes, Turkish Regulatory bodies introduced a new Turkish Commercial Code. The New Turkish Commercial Code (New TCC) aims to regulate commercial relations in line with the recent changes in the local and global business environment as well as technological and legal developments including the European Union (EU) legislation. Particularly the Company Law section of the New TCC includes the most radical changes in the whole law which will have a significant impact on the Turkish commercial life. These radical changes introduced by the New Turkish Commercial Code will have significant effects on the accounting, finance, financial...
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