Question

how accrual basis of accounting is more comprehensive and scientific.​

Answer 1

Answer:

basis is more commonly in use than the cash basis. The accrual basis provides a more realistic idea of income and expenses during a period of time. This method provides a long-term picture of the business that cash accounting cannot provide.

Answer 2

Answer:

$\huge{\blue{\boxed{\green{\boxed{\red{\boxed{\bf{\mathtt{\purple{..A}\orange{n}\pink{s}\red{w}\blue{e}\green{r..}}}}}}}}}}$

Why is the accrual basis of accounting generally preferred over the cash basis?

Accrual accounting is preferred over the cash basis of accounting because it matches revenues and expenses. Look at this example. Assume you sold 100 widgets for $1,000. Also assume the purchaser of this item is given 60 days to pay the $1,000. If we were using the cash basis of accounting, and prepared financial statements 30 days after the aforementioned transaction, here is what your profit and loss statement would look like, assuming the cost of the widgets sold is $500:

Sales $0

Cost $500

Loss ($500)

As you can see, the cash basis does not bring revenue from sales into the financials until received. Now let’s look at the profit and loss using a the accrual basis:

Sales $1,000

Cost $500

Profit $500

Under the accrual method, for financial statement purposes, although the $1,000 is not yet collected, it is owed and will be collected in 60 days. As such, the $1,000 is included in revenue and the expense (the cost of the widgets) are matched against the revenue the respective expense generated.

By matching revenues and expenses, it gives a much better indication of true performance. Under the accrual method, once the widgets are sold, accounts receivable are set up on a balance sheet account, allowing users to see the company is owed this money.

☆✿╬ʜᴏᴘᴇ ɪᴛ ʜᴇʟᴘs ᴜ╬✿☆