Question

In this discussion you can CHOOSE from the following topics; Statement of Cash Flows, Stockholder's Equity, Fraud Internal Control and Cash, or Accrual Accounting Concepts.

Your response should be in at least 2 comprehensive paragraphs.

In the first paragraph explain your topic (what it is).

In the second paragraph explain why this topic is useful.

Your explanation should be elaborate - assume the reader has no knowledge of your topic, and draft your response accordingly.

Answer 1

Being a businessman, taking up growth of the business can be like a sword which is sharp at both edges. The reason behind, if your business growth experience shows increase in profit it may be complicated to analyse and to keep the records because by this you may be needed to find a new way to formulate your capital. Such a way is called the accrual accounting which can be defined as the recording of a financial transaction by an organization at the time of sale, and not when the money is reached in the bank account. This method of accounting allows the organization to account for all sale, cash and credit, in the figures of a particular month, giving a more clearer show of the financial condition of the business. It is basically an effective way of accounting that records revenue and expense when they are commenced, regardless of exchange of cash. It provides a number of basis for which a businessman shall shift on to the accrual method instead of cash basis. It may be not so easy but it gives a number of reasons which are certified by experts:

1) To ameliorate companies financial picture: Accrual method simply allows a businessman to see if the business responds profitabily, where the profit is generated from and where expenses are made. This method also shows compatibility between the expenses and revenue generation.

2) Makes accounts more accurate: Accrual method of accounting provides company a true and fair picture of their reserves and financial responsibilities. This is advantageous for an organization as it allows the proper management of flow of finances and income and debts can be assessed far more accurately with this method.

3) Growth planning: In cash accounting the assessment can be done after the fact while accrual method provides real time accounting. Accrual accounting makes future planning far more easier for business managers since they don't need to wait for cash arrival to check their profits.