When is it appropriate to use the cash basis accounting method veruses accrual bassis accounting method?.?

Answer 1

When you are more concerned about cash balances and cash flow than you are about earnings. As the previous poster said they are never appropriate for GAAP and external reporting, but they can be crucial for managing the day to day operations of a cash strapped corporation.

Answer 2

Ideally, it's not "appropriate" to use cash basis in any situation. However, the only situations where you are "required" to use accrual accounting is when you issue GAAP-basis financial statements for readers that require it. If the statements are audited or reviewed by a CPA firm, they will most likely request them to be on the accrual basis. Also, publicly-traded corporations must issue statements in accordance with GAAP. Cash basis is not GAAP, plain and simple.

Some organizations use cash basis accounting for there day-to-day activities. Then, at the end of the year, they use an accountant to help them convert to the accrual basis. This can allow you to use a simpler method for most of the year, but it also requires a lot of work at the end of the year to issue GAAP-compliant statements.

Answer 3

If the quantum of expenditure or income are certain and can be reasonably estimated, then accrual system of accounting shall be ideal. Otherwise, Cash basis can be adopted.