Accounting: Tools for Business Decision Making, 5th Edition

Published by Wiley
ISBN 10: 1118128168
ISBN 13: 978-1-11812-816-9

Chapter 4 - Accrual Accounting Concepts - Broadening Your Perspective - Critical Thinking: BYP4-7

Answer

(a) Accrual basis accounting means that transactions that change a company's financial statements are recorded in the periods in which events occur, even if cash was not exchanged. (b) Politicians prefer to use cash basis accounting, as this will involve only the cash transactions of the month. (c) The Senators, This is reference to our discussion regards change in the basis of accounting. Accrual basis accounting means that transactions that change a company's financial statements are recorded in the periods in which events occur, even if cash was not exchanged.

Work Step by Step

(a) Cash basis accounting - companies record revenue only when cash is received. They record expense only when cash is paid. (b) Politian are not interested to show deficit budget / financial statement. In accrual basis accounting, all accrued /outstanding expense needs to be recorded, which may run into millions. Therefore, Politician is always interested in having cash basis accounting. (c) Politian are not interested to show deficit budget / financial statement. In accrual basis accounting, all accrued /outstanding expense needs to be recorded, which may run into millions. Therefore, Politician is always interested in having cash basis accounting.
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