Accounting Yr 1 Question- Cash basis vs Accrual Basis (1 Viewer)

[ninicole]

For taxation purpose small business are permitted to use the cash basis of accounting. Explain the differences between cash accounting and accrual accounting. What are the implications of using cash accounting for the measurement of profits and why might it be permitted for calculating taxable income? Despite the use of cash accounting for tax purpose, why do accountants prefer business entities to use accrual accounting?

 

[SSaint]

lol I remember seeing that first semester. But I won't answer it for you, you should really do your own homework, just read the textbook and think about it for a while.

 

[turtleface]

Despite the use of cash accounting for tax purpose, why do accountants prefer business entities to use accrual accounting?

Its more easy to fudge the figures using cash basis (although its easy to fudge with accrual basis too).

Timing issues also distort the economic substance of transactions and the entity's position and performance.

I'm also not sure if Accountants do prefer to use Accrual Accounting. Its laid down in the standards so thats whats used.

 

[Halo]

I think its safe to ignore what turtleface wrote.

I agree with SSaint.

Here is a hint: accrual accounting IS preferred, so why not for SMALL businesses?