Describe cash accounting and accrual accounting systems and the relevant advantages and
disadvantages of each. (150–180 words)
Meaning of cash accounting- In cash basis of accounting, we records any business transactio
...
Describe cash accounting and accrual accounting systems and the relevant advantages and
disadvantages of each. (150–180 words)
Meaning of cash accounting- In cash basis of accounting, we records any business transaction in
books and accounts only when if there are cash pay or receive from transaction.
Meaning of accrual accounting- In this accounting we records all business transaction in the year
in which they occurred. We not consider cash payments and receipts from transaction.
Advantage of cash system-
* This method is easy in understanding.
* Widely use by small business because their are flexibility and easy to maintain records in this
system.
* This method show all cash flows during a period.
Disadvantages of cash system-
* This method is not useful for large business firms and companies.
* This method do not provide correct profit & loss, financial position of a organization.
* This method not allowed to us by laws, IRS.
Advantages of accrual accounting-
* This system of accounting calculate correct profit & loss, financial position of an organisation.
* This method is approved for use by IRS and other relevant laws.
* This method show correct long term cash flows of company.
Disadvantages of accrual method-
* This is useful for large business firms & companies, not feasible for small business entity.
* There is much complex in use and understanding than cash system.
• 2
When would you advise an owner or manager of more than one trading business to trade under a
single ABN umbrella? (80–100 words)
If an owner or manager owns more than one trading business, there are few benefits of operating
under a single ABN umbrella. First of all, the business is legally allowed to operate this way and
by doing so the entities can have simplified transaction method. Second, the administrative and
cash flow costs will decrease, members do not have to issue tax invoices for intra-group
transactions, which means the entity is not liable to pay GST for sales under the umbrella. And
third, the accounting input of the enterprise will become easier and cheaper.
• 4
Briefly summarise
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