Public Sector Accounting Essay

Submitted By anne1991

Words: 478

Pages: 2

Open Document

DISADVANTAGES OF ACCRUAL BASIS

As we all know, this method recognizes revenues and expenses as of the date they occur. Although this method offers advantages in some ways, there can be drawbacks in other ways. This is because, accrual accounting brings about more subjectivity into the accounts and this could distort accounting information produced.
The single most important issue in accrual basis accounting is that it requires transactions to be recorded at the times of their occurrence. Since invoices do not coincide with actual events, this approach necessitates some estimation and guesswork on the part of accountants working under accrual basis accounting. Furthermore, an entire set of rules and regulations have grown up and around these uncertainties in order to guide their accounting, which means that accrual basis accounting is harder to perform than cash basis accounting.
The second disadvantage of accrual basis is in term of revenue recognition. Under the accrual method, businesses have no leeway in paying taxes. This method states that revenue is recorded as soon as it is earned. The date a business actually receives payment for the sale has no effect on the books other than to record the receipt of cash. This also means that income taxes may be owed on revenue before payment is actually received. Since revenue is recognized on the date it is earned, a company may end up paying more in taxes for the year than what it actually received in payment.
Furthermore, accrual accounting usually requires business owners to spend more time managing their financial information. Because accrual accounting records financial transactions as they occur, more journal entries are needed to post financial transactions into the company’s general ledger. Closing out accounting periods also necessitates the use of journal entries. In term of cash flow problems, the accrual

Chapter 2 Budget Documents Essay

Chapter 2: The logic of the Budget Process Purpose of Financial Reporting ► Provide transparency to public officials, the public, and the investment community ► Improve ►A accountability tool for evaluating operating results, fiscal health, and the appropriate level of services Accounting Standards ► Boards set the rules  Financial Accounting Standards Board (FASB)  Government Accounting Standards Board (GASB) ► Focused    on: Revenues & Expenditures Assets (items of value) Liabilities…

Words 1014 - Pages 5

Essay about Accruals: Taxation in the United States and Accrual Method

com/aa/news/2365912/us-lawmakers-call-for-preservation-of-cash-accounting) US lawmakers call for preservation of cash accounting SWITCHING to accrual accounting would be severely damaging to businesses, US lawmakers have warned in a letter calling for the preservation of the cash method of accounting. The letter, signed by a bipartisan majority of the US House of Representatives, urges the House leadership to retain cash accounting for tax purposes and echoes concerns raised by the Senate last…

Words 643 - Pages 3

Acc541 Week 1

describe the accounting standards that are having to be followed and who is responsible for setting them. The reason for accounting standards to be in place is to ensure that the effectiveness of the information is properly implemented by the users. Understanding is pertinent to the organization, so that their objectives and their ethical responsibilities are being met by accountants. Therefore, this paper will review the standard-setting process, the authoritative sources of accounting information…

Words 1256 - Pages 6

Regulatory Bodies Essays

money. Next is the Securities and Exchange Commission (SEC). Public companies are expected to follow the generally accepted accounting principles. They require all companies to report information about their financial statues. This allows all investors to have correct information on a business so they can invest if they chose to with accurate information. The next body is the Financial Accounting Foundation (FAF). This is a private sector. This body is responsible for overseeing the FASB and GASB,…

Words 335 - Pages 2

Ch 2 Financial Asset Essay

A. Conceptual Frameworks for Financial Accounting as Strategies to Meet Market Demands for Info For illustration purposes, the following will be sketched out as a business plan for an automobile manufacturer Relate it to the conceptual framework for financial reporting The conceptual framework for financial reporting are laid out as International Financial Reporting Standards (IFRS) 1. Sketch of a business plan for a carmaker Mgmt. team of an automobile manufacturer Thinking about launching…

Words 1287 - Pages 6

Essay on Financial Accounting

produce financial statements that comply with accounting standards but small companies should not have to do this. A company is defined as large if it exceeds two of the following: a. Total income of $2.0 million b. Total assests of $10.0 million c. 50 employess Large for profit public sector entities will be in Tier 1 (initial accounting standards framework tier structure). Large companies should produce a financial statement tha comply with accounting standards if they have expenses recognised…

Words 525 - Pages 3

Essay on accounting study materials

chart of accounts (national accounting code) Objectives and principles of financial reporting Definitions of elements Recognition and valuation rules Standardized chart of accounts Model financial statements Other influences on French accounting rules Commercial legislation (Code de Commerce) Tax laws Accounting regulation and enforcement CNC – National Accounting Board Keeps plan current Makes rulings and recommendations on accounting issues CRC – Accounting Regulation Committee Converts…

Words 1843 - Pages 8

Essay about Sustainability Accounting

As public concern for the environment and social issues grow every day, the accounting profession and corporations have become more involved through non-financial reporting or sustainability accounting. In the past few decades, globalization has expanded, competition from growing nations increased, and unfortunately, public trust in many industries decreased as scandals emerged due to lack of controls and responsiveness. This realization has allowed companies to see the potential benefits of sustainability…

Words 1895 - Pages 8

Ethics in Accounting Essay

Ethics in accounting is of utmost importance to accounting professionals and those who rely on their services. Certified Public Accountants (CPAs) and other accounting professionals know that people who use their services, especially decision makers using financial statements, expect them to be highly competent, reliable, and objective. Those who work in the field of accounting must not only be well qualified but must also possess a high degree of professional integrity. A professional's good reputation…

Words 1140 - Pages 5

Sarbanes-Oxley Act Essay

publicly held companies and their audit firms-dramatically affects the accounting profession and impacts not just the largest accounting firms, but any CPA actively working as an auditor of, or for, a publicly traded company. The basic implications of the Act for accountants are summarized below. Public Company Accounting Oversight Board will Move to a different private sector regulatory structure, a new Public Company Accounting Oversight Board (the Board) will be appointed and overseen by the SEC…

Words 482 - Pages 2