Accrual Accounting vs. Cash Accounting Essay -- Financial Accounting B

The recording of financial activities in a business is essential in making sure accurate information is provided for decision making. Zafirakis (20054) states that Accrual news report is the cornerst one of modern chronicle system procedures. In this essay, the importance of accrual accounting will be considered by looking at how it functions in the effigy Entry System and comparing it to interchange accounting, another method of conference financial information. Time and an accurate accounting measurement is what will be considered in determining the importance of accrual accounting. Double-entry accounting is used to trail accounting data. From this data, we can determine the performance of a business by calculating its profit, revenues - expenses. Juchau et al (2004F146) states that double-entry accounting is necessary for the accounting equation to be kept in balance. That is the five types of accounts, Assets, Liabilities, Equity, Revenues and Expenses must equate Ass ets = Liabilities + Equity + Revenues - Expenses, this is the accounting equation. These accounts are recorded in the General Journal as entries and post to the General Ledgers as T-accounts.Recording of these accounts are governed by Debit and address rules. When an asset or expense increases, it is considered a debit, when either of the two accounts decreases, it is considered a credit. Liabilities, equity and revenues can be considered the opposites to assets and expenses in that they form a debit when decreased and a credit when increased. From this, a duality of recording is form since every event of recording a transaction involves recording one debit and one credit. For example, Famous Zamous, a cookie company exchange $1000 worth of cookies on th... ...ugh the sale was made on the inaugural of Jan, the cash measurement of accounting has failed to show any activity on the 1st of Jan. This results in a distorted report of financing trading operations of Famous Zamous. Sim ilarly, net profit for the month of January in cash accounting would have differed from that of the accrual measurement, being that revenues and expenses recorded are of different balances, cash accounting being that of lacking information.In conclusion, accrual accounting is the relegate system as it provides a more accurate account of the operations and performances of a business. BibliographyJuchau R., Flanagan J., Mitchell G., Tibbits G., Ingram R.W., Albright T.L., Baldwin B.A. & Hill J.W. 2004 Accounting information for Decisions Australia Thomson Zafirakis, M. 2005 Accounting Handbook Australia trio College Foundations Studies Program