Financial Essay Example | Topics and Well Written Essays - 250 words

Financial - Essay ExampleBusinesses should therefore choose the to the highest degree suitable accounting method. This paper prescribes the accumulation basis of accounting over the hard cash basis.There ar several plus of using the accrual accounting method over the cash method. While the accrual method recognizes income and expenses in the immediate layover, the cash basis recognizes income and expenses in relation to real-time cash flow. In fact, in the case of cash accounting, income is save when funds are received while expenses are recorded when paid rather than as they actually occur. The major advantage of accrual accounting over cash accounting is that it lays a great weight on the period in which expenses and incomes apply, whether money has changed hand or not (McQuaig et al). In this regard, the accrual system records the period in which money is earned instead of when fee is made as in the case of cash basis of accounting. That is, while payment may be made long a fter a job is completed, the accrual basis of accounting would recognize the period in which the work was done. The accrual method thus offers a clearer and more accurate picture on the long-term performance of a business compared to the cash basis (Palmer et al., 1999). The accrual method is also suggested for businesses that cumulus with inventory, be they small retailers to big