Question

The Learning Journal is a space where you should reflect on what was learned during the week and how it applies to your daily life and will help you with your life (career) goals. For this week’s reflection, please write three complete and well-composed paragraphs where you use, as an example, a business that operates where you live and discuss whether you think that business uses accrual-based accounting or cash-based accounting and why.

Answer 1

The business which operates near me is a telecom company. It is the third largest telecom company in the country where i live. Teleco is an essential service and thus the company is hugely profitable. It caters to 33 million subscribers across the country.

The accrual based accounting system states that revenues should be booked when they are earned and costs should be recorded when they are incurred. In this company, revenue is recorded in a phased manner as and when the talktime of the customers expires on a prorata basis i.e. when they are earned. Costs such as rental and energy costs are recorded when they are due i.e. when they are incurred. Thus, the business follows an accrual based method of accounting.

Accrual method accounting is appropriate for the business as it is really vast in scale. Following a cash based method of accounting will not reflect true and correct portrayal of the state of affiars. Even the auditors would have an adverse opinion on the same.