Accrual accounting discussion
This is the prompt: you recently been hired by Davis and Company, a small public accounting firm. What are the firms partners, Alice Davis, has asked you to deal with his friends told client, Mr. pit, the owner of the cities largest hardware store. Mr. peters applying to a local bank for a substantial laundry model his store. The bank requires a cruel base financial statements, but Mr. pit is always kept the company’s records on a cash basis. He doesn’t see the purpose of a cool base statements. His most recent outburst when something like this: “After all, I collect cash from customers, pay my bills in cash, and I am going to pay the bank loan with cash. And, I already show my building and equipment as assets and appreciate them. I just don’t understand the problem”
I am to:
- give an explanation of the difference between a cash basis and accrual basis measure performance.
- Why, in most cases that accrual basis net income provides a better measurement of performance than net operating cash flow.
- The purpose of adjusting entries as they relate to the difference between cash and accrual accounting.
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