Written Assignment Unit 2
Cash basis accounting: This accounting method is mostly used for small business-like farmers,
doctors, personal finance etc. This is an appropriate accounting method for those businesses
where there are not many pre-and post-payments. In cash basis accounting you record
transactions only when you receive the cash or when the expense occurs but in this accounting
method it is easy to track the cash flow.
Accrual accounting method: This accounting method is used for large businesses where there
is a lot of pre-and post-payments. In the Accrual method, you record the transaction but you
didn’t receive the money. It records transactions as Account receivables or Account payables or
sometimes the cash is received and also the transaction is recorded simultaneously. The accrual
accounting method gives an accurate picture of the profitability of the company.
It is a good idea to switch to accrual accounting method for the Salon owner;
The positive impact in business:
It will give more accurate information about the revenue of the business as it records the
transaction but the payment is pending and also sometimes the payment is paid and the
transaction is recorded all together at the same time.
In-salon business, have products like hair care, skincare, face masks, etc. when buying
these products, the owner receives the product but pays later or sometimes pays advance
and receives later. Such can be recorded more efficiently and easily without misleading
the revenue of the business.
It is easy to forecast in the accrual accounting method. Since the future expenses and
revenues are recorded it will help the business owner to create a future budget and can
operate more efficiently.
As the future expenses are recorded it will give the chance to deduct future expenses on
tax returns before actually paying them.
The negative impact in business:
It is hard to track cash flow in the accrual accounting method because there are account
payables and account receivables. This needs a lot of hard work and there can be a
Cash basis accounting: This accounting method is mostly used for small business-like farmers,
doctors, personal finance etc. This is an appropriate accounting method for those businesses
where there are not many pre-and post-payments. In cash basis accounting you record
transactions only when you receive the cash or when the expense occurs but in this accounting
method it is easy to track the cash flow.
Accrual accounting method: This accounting method is used for large businesses where there
is a lot of pre-and post-payments. In the Accrual method, you record the transaction but you
didn’t receive the money. It records transactions as Account receivables or Account payables or
sometimes the cash is received and also the transaction is recorded simultaneously. The accrual
accounting method gives an accurate picture of the profitability of the company.
It is a good idea to switch to accrual accounting method for the Salon owner;
The positive impact in business:
It will give more accurate information about the revenue of the business as it records the
transaction but the payment is pending and also sometimes the payment is paid and the
transaction is recorded all together at the same time.
In-salon business, have products like hair care, skincare, face masks, etc. when buying
these products, the owner receives the product but pays later or sometimes pays advance
and receives later. Such can be recorded more efficiently and easily without misleading
the revenue of the business.
It is easy to forecast in the accrual accounting method. Since the future expenses and
revenues are recorded it will help the business owner to create a future budget and can
operate more efficiently.
As the future expenses are recorded it will give the chance to deduct future expenses on
tax returns before actually paying them.
The negative impact in business:
It is hard to track cash flow in the accrual accounting method because there are account
payables and account receivables. This needs a lot of hard work and there can be a
