Brain Teaser Case Study Bitsy Brooks University of Phoenix Advanced Topics in Accounting Research July 5, 2010 Use FARS to identify what standard-setters have said as to the superiority of accrual accounting relative to a cash basis. Do you agree with the justification offered for accrual accounting? Explain. Accrual accounting is a much better system than cash basis accounting. The accrual accounting promotes matching concepts and cautiousness which are two basic accounting concepts. In cash basis, financial statements represent actual facts of an organization and what the entity owns.
observes: “This Statement relies on a basic premise of generally accepted accounting principles that accrual accounting provides more relevant and useful information than does cash basis accounting. ” This statement was included in the Financial Accounting Standards Board pronouncement Statement of Financial Accounting Standard No. 06 and discusses ‘Employers’ Accounting for Postretirement Benefits Other Than Pensions’ Accounting Theory Issue: When is a “cash-basis method”
than an accrual basis? Why? Cash basis would be much easier to audit than an accrual basis. This is so because The paper trail would be much easier to verify and vouch. Moreover, there will be no adjusting entries to make and double check. Auditors usually have to charge more to do the accrual basis because it is so much more involved and takes much more time and
the idea that certain earnings may be accounted for on an accrual basis while the related income taxes are accounted for on a cash basis? Yes, the Financial Accounting Research System suggests the existence of guidance that sponsors the idea that certain earnings may be accounted for on an accrual basis while the related income taxes are accounted for on a cash basis. For example, the different business transactions that result to temporary differences between book and tax
der accrual basis for accounting income purposes. When did most not-for-profit organizations change from a cash or “modified cash” basis to accrual accounting? Most not-for-profit organizations change from a cash or modified cash basis to accrual accounting occurred in the 1960’s according to FASB’ Statement of Financial Accounting Standards No. 93: Recognition of Depreciation by No