Imagine that you opened a restaurant in your hometown and you decided to take the knowledge and skills you learned in this class and be your own accountant. Discuss whether you would prefer to keep your accounting records on the cash basis or the accrual basis. As part of the discussion, explain how and why you selected one basis over the other.
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NANCY:
The difference between cash and accrual accounting is the timing of when sales and purchases are recorded in your books. Cash accounting documents revenue and expenses only when money changes hands. Accrual accounting acknowledges revenue when it’s earned, and expenses when they’re billed (but not paid). As a restaraunt owner I would operate on Accrual basis. It just seems more logical to me in that the food industry be challenging when forecasting financial goals and knowing that your accounts are updated when you order something helps in knowing what you have to sell to break even. If I waited until I actually paid for it it would skew that result.
