Gold and much more company deal with Jewellery as its core products. The business records cash when it is received and payments are also reported when they are paid for. Cash basis accounting is a technique that recognizes incomes only when it is received whereas expenses are recognized when the payment is made. It does not allow the matching of revenues against expenses thus it is difficult to compare two periods. The books of the company are based on the flow of cash by recording income when it is received and expenses when they are paid. The technique provided short-term information for the period when the transaction was made without considering the past or the future (Dănescu & Rus, 2013).
Cash accounting method is used by new businesses or sole proprietors or small cash-based company or even a service or Construction Companies that lack inventory. Other professionals or firms that employ cash basis include advertising services, lawyers, doctors, and architects. The system is appropriate for areas where income is generated while payments are made at the same time. The technique applies to start-ups for tax purposes as the revenue can be recorded in the next financial year yet expenses are accounted for in the current year (Dănescu & Rus, 2013).
Delegate your assignment to our experts and they will do the rest.
When cash basis is used, if there are no cash movements, the company will not record any accounting records. In this technique, cash is not differentiated as operational, investing or funding. Once the accounting period is over, the accounts are restated to be able to prepare financial statements. Any information in this system is only provided in receipts and payments which are always in cash and cash equivalents. The user or owner of the business can appreciate quality by establishing the differences between net profits and net cash (Dănescu & Rus, 2013).
Reference
Dănescu, T., & Rus, L. (2013). Comparative Study on Accounting Models "Cash" and "Accrual ". Annales Universitatis Apulensis Series Oeconomica, 15 (2), 424-431.
