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Meaning of Accrual basis of accounting

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I want to know well about the United States Of America accounting system, here is my concern: why "accrual" accounting is the best practice and why it should be used, what could be the possibly changes that the "accrual" accounting or the "cash basis" could bring into the financial statements.

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Dear student,

I want to know well about the United States Of America accounting system, here is my concern: why "accrual" accounting is the best practice and why it should be used, what could be the possibly changes that the "accrual" accounting or the "cash basis" could bring into the financial statements.

Meaning of Accrual basis of accounting:
In accrual basis of accounting, the income is reported as soon as it is earned and expenses will be reported as soon as it is incurred. In accrual basis, the company has the discretion of when the income and expense can be recognized. Revenue is recognized when the revenue is earned and the revenue is realized or realizable. Likewise, expense is recognized when the related revenue is recognized.
Cash basis of accounting:
In cash basis of accounting, the income is reported when the cash is actually received and the expenses will be reported when it is actually paid.
what could be the ...

Solution Summary

Meaning of Accrual basis of accounting is defined.

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Accounting Problems

E2-1 On numerous occasions, proposals have surfaced to put the federal government on the accrual basis of accounting. This is no small issue. If this basis were used, it would mean that billions in unrecorded liabilities would have to be booked, and the federal deficit would increase substantially.

Instructions

(a) What is the difference between accrual-basis accounting and cash-basis accounting?
(b) Why would politicians prefer the cash basis over the accrual basis?
(c) Write a letter to your senator explaining why the federal government should adopt the accrual basis of accounting.

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