Cash vs. Accrual Accounting and Balance Sheets - Essay Example

With the help of the cash accounting method any organization can identify its exact cash flow, provided if the company has entered each and every transaction in the account. Cash accounting method is comparatively easy to perform. Accrual basis accounting is the process where the transactions are taken into consideration once the order is made, the product is distributed, and service is provided. It does not consider the time when the amount is paid or received. In the accrual method of accounting, the expenses and the income would be recorded once the goods and the services have been received or the sale has occurred.

It would not consider the payment at the same time of the transaction. This method essentially gives priority to the benefits or the facilities given or received and not the monetary transaction. Cash accounting method is more popular than any other accounting systems. Cash accounting method is easy to execute, on the other hand, accrual accounting method is more accurate in case of making a balance sheet for any organization. At times, accrual accounting is difficult to execute, due to certain confusions in the balance sheets.

In the cash accounting method it is easy to maintain the finance, as the entry is not allowed till the payment is received on the sale and vice versa. On the other hand, the accrual accounting method would increase the difficulties as the transactions might be entered before getting the payment, which might inturn raise problems for the organization. Both the accounting methods are helpful to evaluate and to analyze the company finance at the end of the financial year, with their distinct natures. Q2. The cash accounting method is easier to perform in case of small businesses.

The cash accounting method does not record the transactions in the balance sheet until and unless the payment has been done for the transaction, either by the buyer or by the seller. Once an organization pays for the order placed, the transaction would enter the balance sheet and at the same time if the organization receives the payment for the order placed to them, they would enter the detail of the transaction. It is an easy process, provided the company size is small. Cash accounting does not enter all the dealings at the time of the transaction, thus it would create difficulties and conflicts in case of larger sized organizations.

Therefore, they imply the accrual accounting method for its better accuracy and clarity. Accrual accounting system includes all the transactions made either paid or not. This helps to know the exact cash flow of an organization. Therefore, the cash accounting is more popular in small businesses and the accrual accounting is more effective in case of the big enterprises. Assignment 2 Q1. Balance Sheet is one of the most vital and crucial aspects of financial accounting. It is the total or the summarized value of the finance of an organization at the end of the financial year.

A balance sheet includes partnership, proprietorship, assets of a company, and liabilities of a company and the equity of the owner among others. The date on the balance sheet after every financial year is different in case of different companies. If in any case a company does not have their balance sheet, for example Microsoft, it would be very difficult to know the transactions made by the company, whether the company has faced loss or profit, what are the liabilities and the assets of