Initial question below, need response to post below the question, not the initial question.

Initialquestion(do not respond to this) whydo you suppose financial statements are constructed on an accrual basis rather than a cash basis when cash accounting is so much easier to understand?

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The largest factor that differentiates cash basis accounting from accrual basis accounting is the timing in which the data is included within the account statements. Cash accounting focuses on recording all receipts of cash at the actual time that they receive it, and record the companys expenses when they actually pay them(Cash Accounting, n.d.). Higgins provides us with an overview of accrual accounting as the process of recognizing the receipt of cash/payment as the time in which the effort to generate the sale was completed (12). That is to say, the actual monetary purchase may not happen at the time of sale but accrual accounting take the steps to identify the revenues for the reporting period and assign the costs that led to the revenues.

Both accounting approaches provide only a partial overall picture of the companys financial status. Accrual accounting allows for a good depiction of the companys flow of business income and debts whereas it gives a distorted view of the as to how much cash reserves are available. Cash accounting portrays the more realistic view of the cash flow but it provides an unrealistic view of long-term profitability (Inc., 2000).

Cash accounting is a simple method that is often preferred by smaller companies with less need to track receivables/payables and have less transactions to match up (Bench, 2016). Accrual accounting is the generally preferred method because, while it doesnt provide a good insight to the cash flow, it does provide a good overview of the long-term picture of the companys income and expenses. Having a more accurate picture of the income and expenses is useful in determining the Net income (profit), which is often considered the bottom-line (Higgins, 2012).

Bench. (2016). Cash Basis Accounting vs. Accrual Accounting: Why Knowing the Difference Pays. Retrieved from https://bench.co/syllabus/accounting/cash-accounting-vs-accrual-accounting/

Higgins, R.C. (2012) Analysis for Financial Management: 10^th edition. New York, NY: The McGraw-Hill Companies. Inc.

Inc. (2000). Cash vs. Accrual Accounting. Retrieved fromhttp://www.inc.com/articles/2000/04/19194.html

Investopedia. (n.d.) Cash Accounting. Retrieved from http://www.investopedia.com/terms/c/cashaccounting.asp