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Types of Accounting Systems - Term Paper Example

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Author : abelardo41

Summary

The two major types of accounting systems that are used by accountants are accrued based and cash basis accounting. Transactions under accrued based accounting that changed a company’s financial statements is recorded in the period in which the events occur (Weygand, Kieso, Kimmel, 2002, pg.89)…

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Types of Accounting Systems

“Under cash based accounting revenue is recorded when cash is received, and expensed is recorded when cash if paid” (Weygant, et. al. 2002, pg.89). The use cash based accounting is suitable for small businesses that deal primary in cash such as a hot dog vendor or a pizza cart. The use of cash based accounting is not in compliance with the generally accepted accounting principles, thus public companies cannot utilize this method of accounting because it would violate GAAP and SEC mandates. It is easier to implement a cash based accounting when the firm does not have account receivables or account payables. It is possible for accountants to convert a system from a cash basis accounting to an accrued basis accounting. The process is time consuming due to the fact that the accountant must use a lot of adjusting entries. The users of financial statement or stakeholders require precise and accurate financial statements that are free of fraud and materials errors. The major stakeholders groups that use often use financial information of companies to make decisions include the employees, lenders, shareholders, board of directors, suppliers, managerial staff, governmental institutions, and the community. ...
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