Will your company use cash-basis or accrual-basis accounting? Explain why

My company will use accrual-basis accounting

Explanation:

Accrual-basis accounting is the recognition of revenue when it is earned and recognition expenses when it is incurred irrespective of when payment is received.

Cash-basis accounting is the recognition of revenue when cash is actually received for sales made and expenses is recognized when cash is paid irrespective of the financial year the transaction relates to.

The reasons i choose accrual-basis accounting are as follows:

1. Accrual-basis accounting allows for the proper matching of expenditure against the related revenue, which is consistent with matching concept in accounting.

2. My company being a corporation of over $25 billion gross turnover must adopt the accrual basis. The Internal Revenue Service (IRS) stipulates that every corporation with average gross turnover of over $25 billion is required to adopt accrual basis accounting. The S corporations are exempted from this rules.

3. A business carries inventory are required to adopt accrual-basis accounting. since my company carries a lot of inventory, we must adopt accrual-basis accounting.

4. My company maintain a very high account receivable. Entities that sells on credit are required to adopt accrual-basis accounting.

5. Smaller entities always prefer cash basis but bigger entities like ours will always use accrual-basis accounting.

Our company will use cash basis. As it is easier to do a business with cash inflows rather than accrual basis where you have to wait till the payment is made