ACCT 401 Advanced Accounting: Accrual Based Financial System
Draft a memo to the client to explain the importance of accrual based financial statements, make sure you: explain the difference between a cash basis and an accrual basis measure of performance, describe why, in most cases, accrual basis net income provide a better measure of performance than net operating cash flow, and explain the purpose of adjusting entries as they relate to the difference between cash and accrual accounting.
Answer:
To: Mr. Sean Pitt
From: Research Analyst of Davis & Company
Date: 01/03/2017
Re: Importance of Accrual Based Financial System over Cash Based Financial System
Context Line
It is true that for operating a business efficiently, cash is the best alternative as this is the simplest and faster way for saving money. However, when a business is ran by “cash” only, the business comes with downsides. It has been found that for lending money, a bank looks after the consistency of the business within its client’s finances in order to better detect the involved risk.
Action Line
The particular information can be gathered by the financial institution through two methods – “cash based” and “accrual accounting”. The hardware store of the particular client follows cash based accounting, thus, it does not possess a way for showing the amount earned or lost by the business, as this method does not maintain any record (Saunders & Cornett, 2014). Therefore, the cash based method creates a difficulty in lending money with the bookkeeping methodology. Therefore, it can be said that implementation of the accrual based financial statements is important for any business operation.
Rest Of The Memo
It is a common factor that people pay advance for various things like rent, but cash based method does not provide an exact version of the loss or profit statement. This is the main difference between cash basis and accrual basis. The other difference include - cash method represents a circumstance like this – in one year an individual paid double rent, whereas, in next year he paid nothing. On the contrary, accrual method helps in keeping detail information regarding financial profits of the firm and its way of spending it (Christensen, Baker & Cottrell, 2014). Moreover, accrual method helps in presenting the whole year uniformly and gives an exact look of the company finances. Thus, it can be said that in most cases accrual basis net income provides better measure of performance than net operating cash flow. Therefore, this method assists the banks in lending money to the company as this method represents the financial statements of the firm clearly. Based on the status, the bank will lend money for renovation of the store and therefore, accrual accounting is considered as most useful method for any business.
References
Christensen, T. E., Baker, R. E., & Cottrell, D. M. (2014). Advanced Financial Accounting. The McGraw-Hill Companies, Inc.
Saunders, A., & Cornett, M. M. (2014). Financial institutions management. McGraw-Hill Education,.
Buy ACCT 401 Advanced Accounting: Accrual Based Financial System Answers Online
Talk to our expert to get the help with ACCT 401 Advanced Accounting: Accrual Based Financial System Answers to complete your assessment on time and boost your grades now
The main aim/motive of the management assignment help services is to get connect with a greater number of students, and effectively help, and support them in getting completing their assignments the students also get find this a wonderful opportunity where they could effectively learn more about their topics, as the experts also have the best team members with them in which all the members effectively support each other to get complete their diploma assignments. They complete the assessments of the students in an appropriate manner and deliver them back to the students before the due date of the assignment so that the students could timely submit this, and can score higher marks. The experts of the assignment help services at urgenthomework.com are so much skilled, capable, talented, and experienced in their field of programming homework help writing assignments, so, for this, they can effectively write the best economics assignment help services.
