Cash Basis Accounting and Accrual Accounting Proctored Assignment Questions with correct and perfect Answers Latest May 2024 For Assured A+ Grade Affiliate Institution Due Date: 20/05/2024

Cash Basis Accounting and Accrual Accounting Proctored Assignment Questions with correct and perfect Answers Latest May 2024 For Assured A+ Grade Affiliate Institution Due Date: 20/05/2024 Instructions: Using the information provided, you are to write a report on accrual vs cash accounting. The report must be word-processed and set out using the correct format, including an introduction and body. The report must also contain appropriate headings and subheadings and include a bibliography of any reference materials used. You can provide one (1) draft for review. 2 Task: An ordinary businessman, without experience in Accounting, may think that his profit is Cash Receipts less Cash Payments for the period, whereas the Accounting Profession worldwide follows the Accrual Accounting Method. 1. Briefly describe these two methods for calculating performance of an accounting period. 2. Examine the advantages and disadvantages of both approaches. 3. The Accrual method, though used very commonly, may allow Accountants to become creative by increasing or decreasing profit of the period to their advantage. Provide two specific examples how accountants can manipulate profit in Accrual Accounting. Suggestions Introduction Briefly provide an introduction about what you are intending to talk about in the body of the essay. Body: 1. There are two methods for calculating profit; explain each method by describing what happens under a) Cash Accounting and b) Accrual Accounting. You may describe each by using examples of calculations / transactions. 2. Both methods have advantages and disadvantages. Cash Accounting, for example, is simple to use as ‘revenues’ are recorded only when cash is received, and ‘expenses’ are recorded only when cash is paid; However, Accrual Accounting records ‘revenues’ when services/goods are sold, and records ‘expenses’ when resources/assets are used up. Accrual Accounting is more complex but provides a more accurate measurement of Profit. Discuss 2 advantages and 2 disadvantages of each method. 3. Accrual accounting is more susceptible to ‘creative’ Accounting, which means that the Net Profit can be manipulated more easily. Provide 2 examples to show how revenues or expenses can be manipulated to change the Profit of a given period. Hint: Consider Depreciation and Bad Debt Expense Accounting. Show how these accounts can be used to manipulate Profit and therefore Tax. Numerical examples are highly recommended as part of your explanation. 3 Conclusion: Overall, which method is preferable and why? Bibliography: List (in alphabetical order) the resources you have used in the essay. You should refer to at least 2 references (textbook, lecture notes, other texts). You must also ‘cite’ the reference in the body when you are using a source (refer to ‘referencing guide’ for Accounting given in EAP). Thank you! Table of Contents Introduction 4 Cash Accounting Vs Accrual Accounting Approach 4 Advantages and Disadvantages of Accounting Approaches 5 Conclusion 7 Bibliography 8 Introduction Accounting information provides business stakeholders with an understanding of the corporate financial performance and position. When calculating the financial performance of the business, accountants apply two major accounting methods. The two approaches are cost and accrual accounting systems. The major difference between the accounting approaches is the time when an account records the transactions. In cash accounting, the expenses are recognized when they are paid while income is recognized after payment, and accounts payable and accounts receivable are not recognized. On the other hand, on an accrual basis, expenses and revenue are recognized when they are earned and not when they are paid or received (Oh and Penman, 2023). Accrual accounting is considered to be more realistic compared to cash basis. However, it doesn’t give a true picture of the business's cash flow. This report explains the two accounting methods, the advantages and disadvantages of both approaches and why accrual accounting is more susceptible to ‘creative’ Accounting. Cash Accounting Vs Accrual Accounting Approach In cash accounting, the expenses are recorded after the payment while revenue is recognized in the financial records after they are received. Profit and loss are determined by the cash inflow and cash outflow during the financial year (Kim and Kim, 2017). For example, if a company offers a supply of some products to the government in January but receives payment in June, the revenue is recognized after receiving the payment in June. If a company purchases supplies in January but makes payments in May, the expenses are recognized in May when the cash payment is done. Additionally, for the accrual accounting method, the profit and loss are determined by the expenses and revenue recognized during the financial year. This is regardless of whether the business has received or paid the payment. For example, if a business offers a service in May, the revenue is recognized in May when the service is delivered regardless of when the cash is received. Additionally, if the business purchases a product in October, the expenses are recognized after the expense is incurred in the month of October, regardless of when the cash is paid. Advantages and Disadvantages of Accounting Approaches The two accounting systems provide several benefits in the reporting of revenue and expenses. The cash accounting method provides an accurate image of the business cash flow. This is because the accountant recognizes revenue and expenditures when the expense and income are earned and does not necessarily when the payment is paid or received (Raffer, 2020). Accountant prefers accrual accounting as it aligns with the International Financial Reporting Standards (IFRS) and the Financial Accounting Standard Board in comparison. It is the most accurate accounting method. The approach recognizes expenses and incomes when they are incurred and earned respectively. The accrual basis offers a comprehensive view of the business’s financial performance thus helping to make more informed decisions. The accrual accounting approach allows better forecasting and planning based on the recognized revenue and expenses. On the other hand, the cash method is subjective as it ignores some of the company's income and expenses. For example, the company may ignore the unpaid rent expense making a financial decision if the rent expense is not paid at the end of the financial period.