Countries Mandate Accrual Accounting For Tax -Myassignmenthelp.Com

Question: Discuss About The Countries Mandate Accrual Accounting For Tax? Answer: Introducation In general, there are two main methods, used widely, to record the business transactions Cash basis and Accrual basis. Under cash basis method, the firms record only such transactions, which cause any cash inflow or cash outflow. On the other hand, the transactions, which are related to any particular period, must be recorded in that particular period under accrual method even if the transactions would not generate any cash flow. Though, the cash basis method is very simple and it is very easy to record the transactions under this method, it does not reflect the actual financial position of the business. Hence, all the main accounting standard boards, like International Accounting Standard Board (IASB), Financial Accounting Standard Board (FASB) etc., prefer accrual basis method for recording transactions and preparing financial reports. The major accounting standards, such as IFRS or GAAP, have been constructed on the basis of accrual method (Marshall 2016). As per the accrual method, the business firms have to record all the revenues in the year, in which it is generated and recognized. It should also exhibit the expenses in the period, on which the benefits of the expenses are consumed. If any part of the recognized revenue is not collected in cash or any other means, then it should be treated as accrued revenue and considered as asset of the business. Whereas, if the business consumes the benefit of any expense in a specific period, but does not pay for the expense fully, then the unpaid amount is classified as accrued expenses and recorded in the liability section of the balance sheet for that specific period (Bushman et al. 2016). It has been noticed that almost all the large business houses can neither collect all the revenues nor pay the expenses for a particular period within that period. Therefore, as per IFRS and AASB guidelines, the firms record such uncollected revenues and unpaid expenses as accrual items in their financial reports to exhibit the fair and proper financial performance as well as, financial position of the businesses (Goncharov and Jacob 2014). JB Hi-Fi is a renowned Australian company, which manufactures electronic appliances and accessories. It follows the guidelines of AASB and IFRS to maintain its accounting records and prepare the financial statements accordingly. The balance sheet of the company does not contain any classified group for accrual items. However, both the current asset and current liability includes items, such as, other current asset and other current liabilities. Hence, it can be concluded that, being a large company, JB Hi-Fi might have some accrued revenue and expenses and the following items would have effected by the adjusting entries for accruals: Revenue Other Income Sales Marketing Expenses Occupancy Expenses Administration Expenses Other Expenses Finance Costs From further analysis of the financial notes, provided in the annual report, it has been observed that the other current asset does not have any accrued income. However, the other current liabilities incorporate lease accruals. Hence, it can be stated that the adjusting entries for accruals have majorly effected the lease expenses, which is one of the finance costs (Jbhifi.com.au. 2018). Reference: Jbhifi.com.au. (2018). Cite a Website - Cite This For Me. [online] Available at: https://www.jbhifi.com.au/Documents/2017%20Annual%20Report.pdf [Accessed 25 Jan. 2018]. Bushman, R.M., Lerman, A. and Zhang, X., 2016. The changing landscape of accrual accounting.Journal of Accounting Research,54(1), pp.41-78. Goncharov, I. and Jacob, M., 2014. Why do countries mandate accrual accounting for tax purposes?.Journal of Accounting Research,52(5), pp.1127-1163 Marshall, D., 2016.Accounting: What the numbers mean. McGraw-Hill Higher Education.