Cash Basis Accounting - Coursework Example

Finance and accounting Question one The cash basis accounting is used by most of the sole proprietors as well as businesses without inventory. The system is considered appropriate for a small service company, cash-based business or small businesses. On the cash basis, accounting revenue is recognized once cash is received. On the other hand,in accrual accounting expenses tend to be recognized when cash is paid. Cash basis accounting differs with the accrual basis accounting in some ways (Tulsian 23).

In cash basis accounting, revenues are recorded on the income statement once cash is received while in accrual-based accounting it is recorded when cash is earned. Cash earned entails cash received from customers. In cash basis accounting expenses are reported once cash is paid out while in accrual-based accounting expenses are reported when they expire or occur. The expiry date is different from the payment period. Cash based accounting is the common mode because it is simple and provides cash flow picture more accurately.

Question two Petty cash fund is defined as the amount of cash on hand that is used in paying small amounts owed instead of writing a check. There are ways which can be employed by companies to control petty cash fund. Reporting and audit and the acceptable use are the ways which companies can employ so as to control petty cash fund. The manager should use the procedure of ensuring cash to be disbursed must be approved. The other procedure is ensuring any cash disbursed is signed by the petty cash custodian(Tulsian 65).

Question three The age of accounts receivable refers to a report that tends to list all unpaid customer invoices as well as unused credit memos. They are determined on the basis of their date ranges. The age of the accounts receivable can be used in determining whether the cash due is collectable or not. An example of the uncollectable receivable is the cost of sales made to customers who will not manage to pay(Tulsian 159). Works cited Tulsian, P C. Financial Accounting. , 2006. Print.