The difference between the two types of accounting is when revenues and
expenses are recorded. Accrual basis accounting is described as a company’s income, which is reported in the actual fiscal period the income is earned. It is reported no matter when the income is actually received and the expenses are subtracted in the fiscal period they are incurred regardless if they are paid or not paid. Cash-basis is better managed by a company who does not have many receivables to record. They are more likely used when a payment is made at the time a good or service is sold. Accrual basis accounting provides information that is more useful than cash-basis financial statements because it provides all of the exchanges an organization has made even when they are made on account. In a cash-basis, you will see cash transactions only. The issue with ...view middle of the document...
However, cash-basis is keeping accounts that includes as income received in cash and as expenses paid in cash.
B). Why would politicians prefer the cash basis to the accrual basis?
The accrual basis system deals with depreciation of the value of equipment land and etc. Politicians prefer cash basis to accrual basis accounting because they will be able to see the cash value remain the same throughout. Politicians prefer the cash-basis to the accrual basis because usually they are not accountants, this basis is an easier way to budget the revenue they receive, and it is easier for them to budget. Politicians may also prefer cash basis because they can tax a higher percentage and use the system for income tax purposes as it makes businesses declined in value. This too is how taxes are increased to a higher rate. For a politician cash-basis is better than accrual basis because it is an easy method to keep track of their income and expenses. The full money value can be depreciated and can make a business worth less in the end. The cash basis accounting system is ideal for the government. The cash basis accounting is simple to calculate as well as taxed fully with no write offs. This system used for income tax purposes and makes businesses declined in value. The accrual-basis is revenue recognized when earned.
March 25, 2011
The Honorable Rodney G. Ellis
440 Louisiana, Suite 575
Houston, Texas 77002
Dear Senator Ellis:
The purpose of this letter is to address why the Federal Government should adopt the accrual basis of accounting system. Viewpoints of the benefits of accrual basis accounting are
• Helps in compare performance and stability from one reporting period to the next
• Tends to overstate revenue
• Focus on the outputs of a business rather than inputs
• Improved accountability
• Provides tracking accounts receivable and payable more efficient
• Provides better financial management