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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?The difference between accrual-basis accounting and cash-basis accounting is that accrual reports income and expenses when they are earned or incurred versus cash-basis that records income and expenses when they are received or paid out.(b)Why would politicians prefer the cash basis over the accrual basis? Some may prefer the cash-basis accounting because it can yield a seemingly better view of available cash. It is also a simple and inexpensive method to u se versus the accrual method. You can also use it to defer taxable income because billing can be delayed and payments not received in the current year.payments not received in the current year....
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- Fall '10