The Major Objectives For Business Entity Are To Earn Profit

The Major Objectives For Business Entity Are To Earn Profit Every Com The major objectives for business entity are to earn profit. Every company keeps their financial records and prepares their financial reports. There are two main accounting methods which are used to keep recording of the business. They are cash basis accounting (cash method) and accrual basis (accrual method). Compare and contrast cash basis accounting and accrual basis accounting.

In your discussion, define each method. Explain the differences between the two methods and give an example. Give examples of business that are required by law to use accrual basis accounting. Instructions: Your initial response should be no less than 250 words with at least one scholarly journal reference (dictionary-type websites are excluded). Reply to at least two of your classmates. Replies to classmates should be a minimum of 100 words and include direct questions. In-text citations and references must be in APA format. Refer to the Forum Grading Rubric for additional guidelines. Use credible sources, especially scholarly journals related to the field. Websites such as Investopedia, ask.com, answers.com, or dictionary-type websites are not acceptable. Wikipedia is also not acceptable. The purpose is to bring in new information and discuss its real-world application, beyond basic definitions.

Paper For Above instruction Financial reporting and accounting are fundamental components of business operations, serving to ensure transparency, facilitate decision-making, and comply with regulatory standards. Central to these processes are the two primary accounting methods: cash basis accounting and accrual basis accounting.

Understanding their distinctions, advantages, and legal requirements is essential for businesses, especially for financial management, taxation, and compliance purposes.

Cash Basis Accounting: Cash basis accounting records revenues and expenses only when cash is received or paid. This method is straightforward, making it particularly suitable for small businesses and sole proprietorships that do not have inventory or complex accounting needs (Mowen, 2010). For instance, a freelance graphic designer records income when clients pay and expenses when bills are paid. The simplicity of this method allows for easy tracking of cash flow but can distort actual financial health since receivables and payables are not considered until cash transactions occur.

Accrual Basis Accounting:

In contrast, accrual basis accounting records revenues when earned and expenses when incurred, irrespective of cash movement. This method aligns with the matching principle, providing a more accurate picture of financial position and performance over a given period. For example, a manufacturing company recognizes revenue when a sale is made, even if payment is received later; similarly, expenses are recognized when incurred, not when paid (Kieso et al., 2019). This approach is more complex, requiring detailed tracking of receivables and payables, but it grants a comprehensive view of operational results and financial health.

The primary differences between these two methods lie in their timing of recording transactions, complexity, and suitability for different business sizes. Cash basis is simpler and better suited for small, less complex entities, while accrual basis is the standard for larger, publicly traded companies due to its accuracy and compliance needs. For instance, publicly traded corporations are legally required to use accrual accounting because of regulatory oversight by entities such as the Securities and Exchange Commission (SEC). This requirement ensures consistent, comparable, and transparent financial statements that inform investors and regulators.

In conclusion, understanding the contrasting features and appropriate application of cash and accrual accounting methods is crucial for effective financial management and regulatory compliance. Each method serves different business needs and scales, with the accrual basis being indispensable for large businesses requiring detailed, compliant reporting.

References Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting (16th ed.). Wiley.

Mowen, M. M. (2010). Financial Accounting (8th ed.). South-Western College Publishing.

Scott, W. (2016). Financial Accounting: An Introduction. Springer Nature.

Financial Accounting Standards Board (FASB). (2014). Accounting Standards Codification: Revenue Recognition (Topic 605). FASB. American Institute of CPAs (AICPA). (2020). Guide to Financial Reporting and Accounting Standards.

AICPA Publications.

Schaltegger, S., & Burritt, R. (2018). Contemporary Environmental Accounting. Routledge.

Han, Y., & Lee, S. (2020). 'The Impact of Accounting Methods on Small Business Financial Performance,' Journal of Small Business Management, 58(3), 415-435.

Glover, S., & Prior, D. (2017). Financial & Management Accounting. Cengage Learning.

Jones, M. J. (2019). 'Legal Requirements in Accounting: User Perspectives,' Accounting and Business Research, 49(5), 509-532.

Bhimani, A., & Soon, T. (2019). Management and Cost Accounting. McGraw-Hill Education.