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John Smith opened Smith Reality in January. A CPA friend advised John that the accrual basis of accounting was the most widely used method and suggested its use for Smith Realty. John decided that the accrual basis was too complicated and unnecessary for his business. John decided to use the cash basis for preparing financial statements, even though a few receivables and payables existed at the end of the period.

Discuss whether John behaved in an ethical manner by using the cash basis for preparing company financial statements.

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Cash basis for preparing financial statements is perfectly all right if conformance to GAAP is not required. GAAP requires that public ...

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