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- Subject
- Accounting, Business
- Module
- ACC 280 · Week 2
This assignment discusses the use of cash and accrual accounting methods by companies. It covers the advantages and disadvantages of each method, and whether it is legal to maintain two sets of accounting records. It is for Week 2 of the ACC 280 module.
What's inside
- Cash vs accrual accounting
- GAAP approval of accrual accounting
- Advantages and disadvantages of each method
- Legality of maintaining two sets of accounting records
- Examples of transactions under a dual method
Who it is for: Students taking the ACC 280 course, Week 2. (Undergraduate)
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Summary
Cash and accrual accounting are two methods for tracking a business's financial transactions. Students get questions to compare them and think about when to use each.
Cash Basis Accounting
Cash basis accounting records transactions when money changes hands. This method is simple and quick. It is suitable for small businesses that do not use credit.
Accrual Basis Accounting
Accrual basis accounting records transactions when they occur, not when money changes hands. This method is approved by GAAP. It is better for tracking and reviewing records over the long term.
Comparing the Two Methods
Students compare cash and accrual accounting. They consider the positives and negatives of each. They think about when to use each method.
Dual Accounting Methods
Students consider whether it is legal to keep two sets of accounting records. They think about what transactions might fall under a dual method.
Key terms
- Cash basis accounting
- A method that records transactions when money changes hands.
- Accrual basis accounting
- A method that records transactions when they occur, not when money changes hands.
- GAAP
- Generally Accepted Accounting Principles, which approve the accrual basis of accounting.
- Dual method
- Using two sets of accounting records, one for tax and one for book.
- Complex business
- A business that uses credit and does not pay bills as they get them.
- Simple business
- A business that does not use credit and pays bills as they get them.
Questions this document helps with
- When should a business use cash basis accounting?
- Why does GAAP approve accrual basis accounting?
- What are the positives and negatives of each accounting method?
Summary written with AI from the document's text.
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