Business And The Role Of Accounting
The owner of R&R Equipment Company has decided to omit an asset and related liability, received 1 week before year end, from their year end balance sheet. The owner feels this is alright since they are omitting both and both sides will still balance. The reasoning behind this might be because the inventory has not yet had a chance to sell and has not yet made any profit for the company. Another reason behind this could be that his company has been using the cash basis method of accounting. The cash basis method of accounting "recognizes the impact of transactions in the financial statements only when a company receives or pays cash." (Horngren, Sundem, Elliott, Philbrick, 2006) It is my opinion that using this method of accounting may hinder or omit relevant transactions and information that may later impact the company in a negative manner.
Generally Accepted Accounting Principles (GAAP) refers to the practices that are to be followed while making ready and passing......
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