Accounting Method Recommendation

I have been working as a financial specialist at the California Bureau of Investigation, and such an opportunity has taught me many things. For instance, having ready access to all options for financial resources is crucial to the success of any business. In this case, accounting becomes essential because it keeps a systematic record of an organization’s financial matters. As most studies indicate, accessing the latest financial records facilitates the analysis of financial data concerning past patterns. Complete, dependable, and up-to-date documentation assists users in analyzing a firm’s progress over time (Finkler et al., 2019). Such implies that a business may be compelled to shut down permanently when it lacks careful management of its finances. Even though the various accounting methods, including cash-basis, accrual, and modified accrual accounting methods, have their unique advantages and disadvantages, the ideal method is the accrual basis of accounting as it proves to be more accurate and exact.

Cash Basis Accounting Method

The accounting system known as “cash basis of account” records all transactions in terms of actual cash. In simple terms, the only transactions recorded by this system are those involving cash. Unless the thing being purchased or sold is in the immediate possession of either party, no monetary transaction takes place. While the cash basis accounting approach is quick and easy to learn, it is not recommended for more complex financial situations since all it involves is adding and subtracting.

Advantages and Disadvantages of the Cash Basis Method

The key benefit of this approach is that it is straightforward to implement. Such allows for a more precise depiction of cash flow and allows individuals to keep track of funding. The money is also not subject to taxes immediately, which is another advantage (Rajib et al., 2019). In this case, it does not mean that taxes are not paid on the money but rather that specific procedures must be followed before the cash in question may be taxed.

There are disadvantages worth considering while interacting with the cash basis accounting method. The picture portrayed by cash-basis accounting is insufficient. Because of this, details like liabilities are concealed from one’s view. Many argue that such a situation makes it difficult to accurately portray the status of available funds. Without access to historical financial data, it is impossible to create a reliable financial forecast, which is critical in accounting.

Accrual Accounting Method

The accrual accounting method is the most widely used framework for recording financial transactions in nonprofit and profit-generating firms. The goal of the technique is to ensure that there is advancement. Accrual accounting differs from cash basis accounting in that costs are reported at the same time as the revenues they contributed create or at the same time when the resource is utilized.

Advantages and Disadvantages of Accrual Basis Accounting

The accrual approach of accounting offers more benefits than any other technique. With this approach, the connection between costs and profits is more evident. As most scholars affirm, it paints a more realistic image of assets (Asuquo & Udoayang, 2020). In this case, effectively managing a company’s finances is crucial to its success. Investors’ preference for accrual accounting is a major plus for this system. With this accounting method, investors are more inclined to put money into a business that has an accrual account whenever that business needs capital.

The accrual basis accounting method has some disadvantages. For instance, smaller organizations may struggle to use this kind of accounting since there may not be enough qualified people to manage the finances efficiently. Many scholars state that this method of accounting needs more frequent reporting than the cash-basis alternative. At least once every month, one would have to do a report. The additional drawback of this system is that people will be taxed even when they do not physically possess any cash. As a result, if funds are not received, the firm may be forced to pay taxes and incur a loss.

Modified Accrual Accounting Method

Most states, including local government employees, adopt the modified accrual accounting technique, which places more weight on immediate and ongoing cash flow. Investments and receivables are two tools and examples of modified accrual accounting (Rajin et al., 2019). In this case, it is essential to note that fixed assets are not a part of modified accrual accounting. Under this form of accounting, the value of capital assets is ignored.

Advantages and Disadvantages of the Modified Accrual Accounting Method

The primary benefit of this system is that resources are allocated to the areas that need them the most. In addition, funds are distributed according to priorities. However, this does not imply no money is likely to go to waste or misuse. With modified accrual, quarterly results are emphasized above annual results.

One drawback is that this approach is unavailable to the public or publicly traded corporations. Therefore, it is not recommended that a business provides services to the public utilizing this strategy. The International Financial Reporting Standards are also not satisfied with this approach.

Recommended Accounting Method

The accrual basis of accounting is the one I recommend using. My many years of experience as a financial specialist at the California Bureau of Investigation confirms to me that investors are more likely to be enthusiastic about this method than those who utilize other accounting systems. The involvement of investors is crucial to the success of most firms. In this case, a business with a clear paper trail of its financial transactions will appeal more to investors (Finkler et al., 2019). While this technique needs more effort upfront than cash basis accounting, it ultimately proves to be more accurate and exact. Cash basis accounting simplifies arithmetic operations, but convenience is no guarantee of optimal performance.

Fiscal Management Strategies

Implementing strategies for fiscal management can help a criminal justice agency gain control and succeed. Ensuring no oversight in accounts receivable is one method of achieving this. Such involves keeping an eye on incoming cash and verifying all reports for possible inaccuracies through an accrual accounting basis. Personnel management is another tool for dealing with money issues. Although increasing staffing levels seems like a good plan, unchecked spending can lead to a domino effect in which reduced wages force workers to consider leaving their positions. Employing contractors or freelancers can save money, especially for temporary projects.

Conclusion

Money matters when managing any group, company, or division. In this case, it is vital to keep in mind that not every firm uses the same accounting methods and that some approaches work better for others, even though the three main accounting approaches identified in the discussion are methods that should be used. For instance, the accrual basis of accounting is an excellent one as it appeals more to investors. Accrual basis accounting simplifies planning by requiring one to record all income and expenditures in the appropriate accounting period.

References

Asuquo, A. I., & Udoayang, J. O. (2020). Effect of Accounting Practices on trade and Information technology in Calabar Metropolis. International Journal of Recent Technology and Engineering, 8(6), 1572-1577.

Finkler, S. A., Smith, D. L., & Calabrese, T. D. (2019). Financial management for public, health, and not-for-profit organizations (6th ed.). SAGE Publications.

Rajib, S. U., Adhikari, P., Hoque, M., & Akter, M. (2019). Institutionalisation of the cash basis International Public Sector Accounting Standard in the central government of Bangladesh: An example of delay and resistance. Journal of Accounting in Emerging Economies.

Rajin, D., Džunić, M., & Radojević, T. (2019). Accrual accounting and financial management in the public sector in developing countries. Ekonomika preduzeća, 67(7-8), 470-482.