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Accrual Basis Of Accounting Over Cash Basis

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Introduction There has been a significant debate focusing on costs and benefits of adopting accrual basis of accounting over cash basis of accounting. This paper illustrates the concepts of accrual basis of accounting, highlights the benefits of accrual basis of accounting posed by its advocates and also briefly discusses the disadvantages of adopting accrual basis accounting. The paper also briefly discusses the recent accounting scandal of Tesco Plc. which showed that profits of the company were overestimated by approximately 250 million and resulted in suspension of eight employees as well as an initiation of investigation by Serious Fraud Office (SFO) UK. The paper finally concludes that the substantial risks and costs associated with accrual basis are yet to be justified to encourage its adoption. Discussion Numerous business transactions have effects on different time periods. For instance, suppose Citigroup purchases a new building or Delta Air Lines purchases a new airplane; these assets are going to be used for several years. It is argued that the full cost of such items should not be expensed at the purchasing period as such items are going to be used for several subsequent years. Thus it is important to determine the effects of such transaction on particular accounting periods. However, determination of revenues amounts and expenses amounts and reporting them in any given accounting period is rather difficult (Bamber and Parry, 2014). Reporting properly demands
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