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Unformatted text preview: E3-2On numerous occasions, proposals have surfaced to put the federal government on the accrual basis of accounting. This is no small issue. If this basis were used, it would mean that billions in unrecorded liabilities would have to be booked, and the federal deficit would increase substantially.Instructions(a) What is the difference between accrual-basis accounting and cash-basis accounting?Accrual-basis accounting recognizes expenses when they are incurred, however, cash-basis accounting records revenue when the payments from customers are received.(b) Why would politicians prefer the cash basis over the accrual basis?Politicians prefer cash basis since they receive donations and promises for donations all the time. If someone promises to donate money, the transaction would need to be posted when the person promised the money, and if the politicians never receive the money, they will still have to pay income taxes on the money that was promised.(c) Write a letter to your senator explaining why the federal government should adopt the accrual basis of accounting.Dear Senator,The Federal Government should adopt the accrual basis of accounting because all sales and expenses are incurred at the time of the transaction. This method is much more accurate than the cash basis, given that one may owe a company money, but if they have not...
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This note was uploaded on 11/01/2010 for the course ACC 281 281 taught by Professor Hong during the Fall '10 term at University of Phoenix.
- Fall '10