Which basis of accounting do most companies use, cash or accrual? Why? Which method is approved by GAAP? Why? What are the positives and negatives of each? Is it legal for an organization to keep two sets of accounting records; one for tax and one for book? Why or why not? What transactions might fall under a dual method?
Most companies use accrual-basis accounting because it lets them record transactions in the periods in which the events occur. The example they used in the readings states: using the accrual basis to determine net income means companies recognize revenues when earned (rather than when they receive cash). It also means recognizing expenses when incurred (rather than when paid). Many companies do not like to use cash-basis accounting because it often produces misleading financial statements.

Accrual-basis accounting is approved by GAAP because it recognizes revenue when earned and expenses when incurred in the accounting period when the events occurred. Plus, cash-basis accounting is not in accordance with generally accepted accounting principles (GAAP).

Positives/Negatives for accrual-basis accounting: Lets companies record transactions in the periods in which the events occur. It may leave a company in the dark as to what cash reserves are available. For example, a company’s ledger may show thousands of dollars in sales, while in reality their bank account is empty because their customers haven’t paid them yet.
Positives/Negatives for cash-basis accounting: Simplicity and is used for small businesses because they often have hew receivables and payables. It often produces misleading financial statements. It fails to record revenue that a company has earned but for which it has not received the cash. Also, it does not match expenses with earned revenues.

Yes, it is legal for an organization to keep two sets of accounting records because