the cash basis method of accounting
Discussion 3
Under the cash basis method of accounting, Dress-for-Success Company usually records the revenue transactions and the expenses at the time when the corresponding cash is paid or payment is received. This is because the fee is collected at the beginning of every month, with respect to each month’s sales, and expenses are only recorded in each, their own time. In this case, the revenue is recorded on the income statement the only time when cash is received, and expenses are recorded only when the cash is paid out. If the company was using the Generally Accepted Accounting Principles, the recording of the revenue is done at the time when a service or product is delivered to the customer, even when the payment will be made in future; the expenses of the service or product is also recorded at the same time even when the cash has not been paid out for those particular expenses (Adamyk & Adamyk, 2017).
Dress-for-Success Company should consider the use of Generally Accepted Accounting Principles in her accounting because this particular system of accounting includes the accounts payable and receivable thereby depicting the true nature of the company’s profitability, as opposed to the cash method of accounting which usually overstates the profitability as being cash-rich when in a real sense, there may be lost when the cash payables are deducted. The $5 million revenue could be a loss the factoring in of the cash to be paid out.
In this case study, it is evident that there are ethical issues which should be looked into. The second hand gently used clothing should be cleaned and disinfected before shipping, if that was not being done before- to ensure the second user do not suffer from probable infections from the first user. Also, the GAAP should be used to ascertain the exact taxes payable to the government, which is hard to do when using a cash method of accounting privately.
Discussion 4
Impact of Poor Bookkeeping on Company Performance.
Poor company accounting is likely to hurt your business in several ways regardless of whether the company is making a profit or not. Also, poor bookkeeping may make your company incur more operational costs or nosedive you into a legal situation. Several factors can be impacted due to poor company accounting. This paper summarizes the effects of poor company bookkeeping and accounting.
Credit issues
Poor bookkeeping might have adverse impacts on how the company conducts its operations. For example, you might find a company paying debts late, and thus paying higher interests rates, or even loss of credit and interruptions with credit reports or score. To avoid such negative effects, the company ought to employ a professional accountant, who is capable to track all cash flows and transactions carried out. Effective cash management and reporting are all parts of efficient accounting (Musah, 2019).
Lack of profits and sales
Poor management of a company can make you lose access to good vendors and suppliers.
Subsequently, the company starts to lose sales as well. On top of that, the business slowdown may turn away potential customers and clients. Reduced payments or increased number of low-valued clients can say a lot about your company performance. The company should consider employing hybrid accountant or bookkeeper who can take care of accounting, bookkeeping, and advisory services since all these three are interdependent.
Reduced decision- making opportunities
Keeping correct financial records enable a company to monitor its departments, supply channels, products and general performance if the company regularly. Cash flow statements, balance sheets, ledgers, budgets, payables, receivables, and profits statements are very critical when it comes to addressing problems as well as spotting opportunities promptly. All of these are credited by accurate company accounting as a technique of running your company efficiently.
Discussion 5
The information found on www.fasb.org/home and www.ifrs.org explores the function of IFRS. Whereas, www.sec.gov explains the importance and function of US Securities and Exchange Commissions (SEC’s). SEC’s is responsible for the regulation of market securities and also facilitates the formation of capital. Such capitals help companies to grow.
IFRS stands for International Financial Reporting Standards. The IFRS is accounting standards developed by the International Accounting Board (IASB). These standards are internationally used to govern companies prepare their financial reports and statements. Unlike the General accepted Accounting Principle (GAAP), the IFRS does not dictate specifically how financial reports should be documented, instead, they provide guidelines that complement the accounting standards and globally make financial accounting procedure (Van et al., 2017). Both corporate and individual investors can evaluate the financial reports of an organization and come up with an informed decision and decide if or not to invest in that particular organization.
The GAAP is a set of principles that firms, companies and organizations in the US must adhere to when preparing their financial reports. The measures take an authoritative methodology to the bookkeeping process to eliminate inconsistency in the financial reports presented by public firms to the United State Securities and Exchange Commission. Investors use this information to make a cross-comparison of different financial reports to come up with an educated decision when investing.
References
Adamyk, O., & Adamyk, B. (2017). Accounting methods for public sector entities. CZECH JOURNAL OF SOCIAL SCIENCES, BUSINESS AND ECONOMICS.–2017.
Musah, A. (2017). Benefits and challenges of bookkeeping and accounting practices of SMEs and its effect on Growth and Performance in Ghana. Journal of Accounting, Business and Management (JABM), 24(2), 16-36.
Van der Meulen, S., Gaeremynck, A., & Willekens, M. (2007). Attribute differences between US GAAP and IFRS earnings: An exploratory study. The International Journal of Accounting, 42(2), 123-142.