E3-2 Assignment - only when it receives cash and an expense...

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E3-2 On 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? (b) Why would politicians prefer the cash basis over the accrual basis? (c) Write a letter to your senator explaining why the federal government should adopt the accrual basis of accounting. (a) Accrual-basis accounting is the basis in accounting in which companies’ record, in the periods in which the events occur, transactions that change a company’s financial statements, rather than in the periods in which the company receives or pays cash. Cash-basis accounting is the basis in accounting in which a company records revenue
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Unformatted text preview: only when it receives cash and an expense only when it pays out cash. (b) Politicians would prefer cash basis over the accrual basis of accounting because with accrual all that is happening is the money is piling up and not getting paid to them. With the cash basis accounting you are getting paid when pay day comes. (c) Dear Senator I am writing you this letter to inform you that I think that the federal government should adopt the accrual basis of accounting. The reason why I think that this should happen is because we are hurting here in our country. We need to make sure that the money that is getting spent comes out in the wood works before the federal government starts spending any more money and continues on the route that we are going. Thank you for your time....
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