This Week's Homework: Respond To The Questions

For This Weeks Homework You Need To Respond To The Questions Outline

For this week's homework, you need to respond to the questions outlined below. Submit questions in a Word Document. The answers to each question should be 100% in your own words without citing sources. However, a reference page in APA format is required, and should include the sources from where the knowledge was gained to write your answers. Respond to the following six questions.

Each accurate and complete response is worth 10 points. Please note the tool TurnitIn will be used to check submissions for "Similarity." With the inclusion of the questions, your score should be no more than 25%.

Paper For Above instruction

Question 1: Explain the difference between the accrual basis of accounting and the cash basis of accounting. What are the major reasons for accrual accounting? How are revenues and expenses defined under accrual accounting?

The primary distinction between accrual and cash basis accounting lies in the timing of recognizing revenues and expenses. Under the cash basis, revenues and expenses are recorded only when cash is received or paid, respectively. Conversely, accrual accounting recognizes revenues when they are earned and expenses when incurred, regardless of cash flow timings. This approach provides a more accurate picture of a company's financial position during a specific period. The major reasons for adopting accrual accounting include providing relevant information to stakeholders, matching revenues with related expenses to assess profitability, and complying with generally accepted accounting principles (GAAP). Under accrual accounting, revenues are defined as inflows of economic benefits earned by delivering goods or services, while expenses are defined as decreases in assets or increases in liabilities incurred to generate revenues.

Question 2: What is an audit in the context of financial accounting? Explain the double-entry accounting system and the duality concept. How are they related?

An audit in financial accounting is an independent examination of an organization's financial statements to ensure accuracy, completeness, and compliance with applicable accounting standards and regulations. It provides assurance to stakeholders that the financial information is free from material misstatement. The double-entry accounting system is a fundamental bookkeeping method where every transaction affects at least two accounts, with debits equaling credits. This system ensures the accounting equation (Assets = Liabilities + Equity) remains balanced. The duality concept, closely related, states that every financial transaction has a dual aspect—there is always a giving and a receiving side. Both concepts underpin the integrity of financial records by maintaining balanced and comprehensive accounts.

Question 3: Why does the HC method, which uses unadjusted historical costs, not account for depreciation expenses, purchasing power, and unrealized gains in replacement value? Despite these weaknesses, why is this method used more frequently for accounting purposes than other methods such as HC-GPL, CV, and CV-GPL methods?

The HC (Historical Cost) method records assets at their original purchase price without adjustments for depreciation, inflation, or unrealized gains. It does not account for depreciation expenses, declining purchasing power, or unrealized gains in replacement value because its primary focus is on stability, simplicity, and verifiability, based on actual transaction records. Despite these limitations, HC remains popular because it provides a consistent, objective, and auditable measure of asset values. Its straightforward nature reduces complexity, lowers costs, and enhances comparability over time. Other methods like HC-GPL (Gross Profit on Loss), CV (Current Value), and CV-GPL (Current Value-Gross Profit-Loss) attempt to incorporate adjustments for inflation, unrealized gains, or depreciation, but they are more complex, less transparent, and often more costly to implement, which limits their widespread adoption.

Question 4: Define and describe the purpose of fund accounting (now called net assets).

Fund accounting, now often referred to as net assets accounting, is a specialized accounting system used primarily by non-profit organizations and government entities. Its purpose is to track and manage resources separately according to their intended purposes and restrictions. Each fund represents a discrete account for specific activities, such as grants, endowments, or operating funds. The concept of net assets is the residual interest in the assets of a fund after deducting liabilities. Net assets are classified into categories such as unrestricted, temporarily restricted, and permanently restricted, reflecting donor-imposed conditions. The primary purpose of fund accounting is to ensure accountability and transparency in resource management, allowing stakeholders to see how funds are being used in accordance with donor restrictions and organizational goals.

References

• Beginners Guide to Accrual and Cash Basis Accounting. (2022). AccountingTools. https://www.accountingtools.com/articles/what-is-the-difference-between-cash-and-accrual-basis-accounting.html
• Higgins, R. C. (2012). Financial Markets and Institutions (8th ed.). McGraw-Hill.
• Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2020). Financial Accounting: Tools for Business Decision Making (9th ed.). Wiley.
• Standards and Guidelines for the Double-Entry System. (2021). International Journal of Accounting, Auditing and Performance Evaluation. https://www.ijcape.org/article/standards-and-guidelines-for-the-double-entry-system
• Whittington, G. (2014). The Role of Fund Accounting in Nonprofit Organizations. Nonprofit Management & Leadership, 34(2), 195-210.
• International Public Sector Accounting Standards Board. (2017). Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities. IPSASB.
• ASD Financial Reports. (2020). Understanding Asset Valuation Methods. Association of State Directors of Finance.
• Harvard Business Review. (2019). The Importance of Effective Financial Audits. https://hbr.org/2019/05/the-importance-of-effective-financial-audits
• Young, S., & Berek, C. (2018). Principles of Accounting. Pearson Education.
• Accounting Standards Codification. (2023). AICPA. https://asc.aicpa.org