Information Systems vs Information Technology
Introduction It is often observed that term information system and information technology are used interchangeably. In a literal sense, information technology is a subset of information systems. Information systems consist of people, processes, machines and information technology. The great advancement in information systems is due to development in information technology and introduction of computers. Information […]
How to Project Yourself as a Brand by Using Strong Keywords and Updating the Profile Periodically
Before we begin with the topic, we need to understand few pointers such as what is branding? How would you brand yourself? What are those keywords and how to utilize them to create a strong brand presence? These are some questions which need to be clarified before we proceed. Branding: Branding yourself is a technique […]
What are Employee Training Manuals ?
Employees need to be trained on a regular basis to acquaint them with the latest developments, technologies, softwares and make them ready for unforeseen circumstances. Employee training manuals are small handbooks which are given to employees by training managers for their future reference. Employee training manual should include relevant information which would help employees enhance […]
Developing Price Strategies and Programs
Marketing mix for companies comprises of 4 Ps Product, Price, Place and Promotion. Price is directly related to bottom-line of any business. Profitability of product is required for future operation of the company. Price strategy should communicate to the customer the value company is providing. There is in-numerable price related challenges in the market for […]
Career Development Issues with Teams
Teams are increasingly being considered as a unit of work world over. Organisations seek harmony, coordination and oneness in teams for growth and prosperity. More emphasis is laid on group and team dynamics, still however career development issues concerning the teams are neglected somewhere, which is truer for organisations in the developing world and multi […]
Cash Basis of Accounting uses receipts and payments of cash to record incomes and expenses. Therefore, under the cash basis of accounting, if a corporation makes salary payments of January, 3 months later in April, it will be considered as expenses in the month of April, since that is when the cash was paid. Also, if the same company pays advance salary for the month of May in April, then it will be considered as an expense for April.
Similarly, the time companies spend doing value addition to their products, shows up in the books as expenses. Only when sale is closed and cash comes in the door, is income recognized. Cash basis of accounting considers advance payments as income since the cash has been received.
There are obvious problems with cash basis of accounting. They are as follows:
It is not uncommon for firms to negotiate trade credit for themselves. Under the terms of trade credit, firms use raw materials over a period of time and then make one lump sum payment for the use. Under the cash basis of accounting, all expenses appear on the financial statements at one go when the payment is made. This clutters expenses on the financial statements.
Just like we use credit from our suppliers, the firms that deal with us also tend to use our credit. They also make our payments in one lump sum. Therefore just like the expenses, the income also tends to be cluttered.
Under the cash basis of accounting, there will be no or very little income and expenses in some months and very large income and expenses in some others. This will be because of the cluttering effect. As a result, the financials become unpredictable.
On the other hand, accrual basis of accounting, recognized income when it is earned and recognizes expenses when they are incurred:
We use a combination of cash and accrual basis of accounting. The profit and loss account and balance sheet are prepared as per accrual basis while the cash flow statement tells about the cash situation of the firm.
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