Dr. Srivastava is a lawyer. His accountant advised him to maintain his books of accounts according to the accrual basis instead of the presently followed cash basis of accounting. Do you agree with the advice of accountant? Give reasons.
Dear Student,
Yes, I agree with the advice since Accrual basis of accounting discloses true profit or loss for a particular period and also depicts true financial position of the business at the end of a particular period as it takes into account all the transactions relating to a particular period which cash basis of accounting doesn't account. Accrual basis also takes into considerations all adjustments like outstanding expenses, prepaid expense, accrued income and income recieved in advance. There is consistency in the computation of profits of different years in accrual basis which is not there in cash basis of acccounting.
Hope this helps!
Regards,
Yes, I agree with the advice since Accrual basis of accounting discloses true profit or loss for a particular period and also depicts true financial position of the business at the end of a particular period as it takes into account all the transactions relating to a particular period which cash basis of accounting doesn't account. Accrual basis also takes into considerations all adjustments like outstanding expenses, prepaid expense, accrued income and income recieved in advance. There is consistency in the computation of profits of different years in accrual basis which is not there in cash basis of acccounting.
Hope this helps!
Regards,