Josue Moura_S40061395_Report on Financial Activity_Ass01.docx

This article is a guide to help you understand cash

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This article is a guide to help you understand cash and accrual accounting, and the difference of each method. What is Financial Reporting? Financial reporting is an essential part of operating a business, providing an overview of an organisation financial activity over a period of time and an essential requirement for an organisation to meet its statutory requirements. Part A – Written Question 1 The two methods used in Australia Cash Accrual a) The text below explain the two methods used Cash Accounting: Financial transactions are reported when a customer pays for the goods or services sold or when an organisation pays its expenses or liabilities. The cash accounting method tracks the actual money coming in and out of your business. In cash accounting, if you get an invoice for something, you don't record the cost in your books until you've paid the invoice. Similarly, when you send an invoice to a customer, you don't record the sale in your books until you receive the money from the customer. Cash is a good choice for small businesses, providing a simple system that keep track of the business cash flow, mostly handle transactions in cash, for example a hairdresser's or a grocery store, giving a picture of how much money it has in its till and in bank accounts. Accrual Accounting:
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Financial transaction is reported on the day the transaction occur, whether it is on cash or credit, rather than when money is received. Accrual accounting gives an organisation a better view of daily financial transactions of their business. If you use accrual accounting, you record expenses and sales when they take place, instead of when cash changes hands.
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