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Could using the cash accounting method VS the accrual accounting method, get different analysis that affect the decision making ??

Accounting Cost Accounting Financial Accounting Financial Management
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Question added by Tamer Elbeshbishy , Financial and Administration Manager , Muscat Towers Holding Group
Date Posted: 2014/12/27
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Tamer Elbeshbishy
by Tamer Elbeshbishy , Financial and Administration Manager , Muscat Towers Holding Group

Please see this example to clarify 

THE COMPANY HAS SALES OF $1000001 YACHAT SOLD,100% STILL UNCOLLECTED.

COSTS $800000 (ALL PAID IN FULL UNDER THE SUPPLIER TERMS)

 

¨Nassau Corporation experienced the following activity last year:

 

¨Now contrast the differences in performance under the accounting method versus the cash method.  

INCOME STATEMENT SUMMARY

 

                                   ACCRUAL      CASH

Sales                         $100,000            $      0

Less: Costs              (80,000)              (80,000)

Net Profit/(Loss)    $ 20,000             $(80,000)

VENKITARAMAN KRISHNA MOORTHY VRINDAVAN
by VENKITARAMAN KRISHNA MOORTHY VRINDAVAN , Project Execution Manager & Accounts Manager , ALI INTERNATIONAL TRADING EST.

Sir only minor variations generally.

Malik Khalid Mahmood
by Malik Khalid Mahmood , Regional Finance Manager , Leosons International FZ LLC

Accruall Basis

All accrued revenues and expenses are booked to get the net results of business

Cash Basis

only revenues and expenses are booked when they are incurred.

Differences

A great differences in profits will come each year.

 

mohamed Hakim CMA CPA Candidate
by mohamed Hakim CMA CPA Candidate , Accounting Manager , Andersen saudi arabia

Good question and answer to learn 

Khan Sohal khan
by Khan Sohal khan , Associate , State Street Syntel Services Pvt Ltd.

So far as responsibility and goodwill are related accrual method is more useful in decision making whereas opportunity of profit and urgency are related cash method is more useful. Thanks Sir for invite

Jijumon James
by Jijumon James , SENIOR ACCOUNTANT , BADR AL SAMAA HOSPITAL

Sir, In india as per the companies act2013,  only mercantile system is allowed. and also as per  accounting standard9 issued ICAI, Revenue recognition should be on accrual basis, if the risk and reward of the goods trasferred to customers.

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