Accounting Communications Activity Many people do not understand the concept of accrual

accounting and how it differs from accounting on a cash basis. In particular, they are confused

as to why a companys results in any one accounting period can differ so much between the two

methods of accounting. Because the cash basis is understood to a far larger degree, many people

argue that the cash basis should be the primary basis of accounting.

Directions

Write a short memorandum that explains the difference between accrual accounting and the cash

basis of accounting. In your memo give a simple example of how the accrual basis can give a clearer

picture of a companys performance in a given period.