Running head: Week 3 Individual Summary Question

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Week 3 Individual Summary Question ACC/290

WEEK 3 INDIVIDUAL SUMMARY QUESTION Week 3 Individual Summary Question All businesses need to record an accurate record of their financial states. In

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order to do so, businesses employ one of two systems; the cash system and the accrual system. Both have their strengths and weaknesses when it comes to financial reporting. While both do their jobs reasonably well, they are vastly different in how they report financial movements within a business. The cash system of accounting is often used for smaller businesses. The cash system of accounting counts revenue for a business when cash (or a check) from the customer arrives into the company. Prior to this happening, there is no record of revenue coming into the company. In addition, you do not count something as an expense toward the company until it has been fully delivered, paid for, and if necessary, installed (Kimmel, 2009). The pros of this type of system are that it is simple. When money physically comes in the door is the time that you count it towards income. When cash is physically going out the door is when you count it toward expenses. In addition, this type of accounting system gives business a more accurate view of what their present cash-flow situation is at any given time (Kimmel, 2009). In stark contrast to the cash method of accounting, the accrual method eschews the need to actually see the money in order to record it as income. In the accrual method of accounting, once a sale is made it is counted towards income. Eventually the product is delivered, however it is counted towards the revenue stream immediately after being booked. In addition, expenses are listed once they are ordered, instead of when they are delivered (Kimmel, 2009).

WEEK 3 INDIVIDUAL SUMMARY QUESTION The accrual-based