Week 5 Team Assignment Problems

Week 5 Team Assignment Problems - E3-2 On numerous...

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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 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
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This note was uploaded on 03/28/2011 for the course ACCT 349 taught by Professor Goyal during the Spring '09 term at University of Phoenix.

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Week 5 Team Assignment Problems - E3-2 On numerous...

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