Brain Teasers Number 4Brain Teasers Number 4Cash or Accrual AccountingThe search for Financial Accounting Standards Board (FASB) standards statement is whether cash or accrual accounting which one is the best, in my opinion that accrual accounting is the best , but by all indication on the codification site and the Generally Accepted Accounting Principles (GAAP) this is their opinion also that accrual accounting is superior over cashaccounting. When researching which one would be better I searched and I found that cash-basis accounting , record all transactions on the books when the cash is received from the customers tothe company whether it for purchases or services. The cash payment can be in a form of cash , check, credit card, and electronic transfer. Most companies that use cash basis are small companies. Whereas, accrual accounting it is recorded on the books when it happen, even if no cash changes hands. For example if you sell an item on credit , the transaction will immediately be enter into an account receivable account until the payment is received. If the company buy goods on credit , it will be immediately enter into the accounts payable account until the company pay for it. Most companies use the accrual accounting method because it monitor cash flow on a weekly basis and shows if the company has enough money to operate. Most large companies us accrual accounting method.Accounting Theory IssueCash basis is mostly used for small companies and do not need a large amount of revenueand expense accounting system. The cash basis could be a plus to the accrual system . The reason why accrual does not account for the revenue and expense only when cash is received. The statement of cash flow is involved in the accrual as is accounting, This aids the users to verify the right profit and loss status of the company but to verify cash flow in the statement of cash. This is using both methods. Auditing IssueCash basis accounting is easier to process and it is easier to audit. The cash basis shows when the money comes in and out of the company. When reporting cash is done only when received. Whereas the accounting accrual shows a detailed accouning report that shows therecording of revenue and expenses when they occur not when the money is received or paid by the customers. When auditing cash basis would audit the cash flow of the business not the required extensive detail as accrual. Accrual basis involves verification of account receivable and accounts payable with other revenue and expense accounts to determine if there is misstatement or fraud within the company. Cash basis only required auditing on the cash flow ofthe company.Tax issueThe income tax is based on cash basis whereas other types of earning can be accounted for on an accrual basis. The reason why is income tax cannot be figured on the time value of money. Earnings show a profit or loss but income tax do not do either one. Even though ,it is a liability to the government, income tax is a payable when it is due so this must be considered in cash basis. The FASB provides a guideline of how the tax liabilities needs to be reported within the financial statements and the disclosures within the financial statements. The taxes come from the congress of the United States and then they goes to the IRS. Not-for-profit IssuesThere has not been any proof of not-for-profit organization going to the accrual accounting and it do not seem they may go to accrual accounting in the future. The industry of Accounting the Financial Standards Board Codification web site there is a list for not-for-profit which is labeled 958. This labeled 958 has several requirements for financial reporting of asset, liabilities, commitments , and depreciations. Not -for-profits also work with revenue and expenses. The oldest information that is found is related to depreciation in Statement of 93 datedback in the year of 1967. This statement is about long lived assets depreciation, due to the date that was switch to acrual account that seems to be in May 1988 when the accrual statement wasissued.ReferencesFASB Accounting Standards Codification. (2012). 958 Not-for-Profit entities. Retrieved June 18,2012 http://asc.fasb.org/industryviewall&tridAccounting Standards Codification-FASB. Retrieved June 18,2012asc.fasb.orgFASB facts about