The Concept of Cash-Basis Accounting and Accrual-Basis Accounting Essay

There is a significant difference between cash-basis accounting and accrual-basis accounting. Cash-basis accounting relates to recording a transaction only when there is a cash receipt or cash payment for it. However, accrual basis accounting refers to the recording of all transactions at the time of their occurrence (Boyd et al., 2014). In other words, accrual-basis accounting requires recognizing income when it is earned and recording expenses when they are incurred. Mostly, public companies use accrual-basis accounting to record revenues and expenses. However, I agree with the argument that there are issues for the government related to accrual-basis accounting.

Government transactions mainly include a series of payments or liabilities that are not settled in a single period. If it records the entire amount of liabilities in a single period, the accounts will show a high deficit. The argument is also valid as cash-basis accounting involves the recording of liabilities when they are paid, which does not show a true view of accounts. The principle of a true and fair view of accounting is eliminated in cash-basis accounting in the case of governmental reporting. The citizens of a country are the stakeholders of the public accounts that are prepared and published by the leaders of the country. Therefore, the government should not misguide the public regarding its liabilities that may affect its planning for the delivery of public services (Bac, 2013).

In my opinion, estimations, anticipations, and predictive approaches used in accrual-basis accounting are useful in preparing plans and budgets for coming years (Scott, 2016). Therefore, the government should ignore the issue of representing a high budget deficit and focus mainly on sharing the correct information with the public. The accounts published for the public should be maintained and managed properly by the government to meet their requirements. I agree with the argument that governmental accounting should also be prepared according to the accrual-basis accounting method.

References

Bac, A. (2013). International comparative issues in government accounting: The similarities and differences between central government accounting and local government accounting within or between countries. New York, NY: Springer Science & Business Media.

Boyd, K. W., Epstein, L., Holtzman, M. P., Kass-Shraibman, F., Loughran, M., Sampath, V. S.,… Welytok, J. G. (2014). Accounting all-in-one for dummies. Hoboken, NJ: John Wiley & Sons.

Scott, P. (2016). Accounting for business. Oxford, UK: Oxford University Press.

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