You have recently been hired by Jones & Co, a small public accounting firm as an internal auditor. One of the firm's partners, Joe Jones, has asked you to deal with an unhappy client. The client, Susan Swan, is the owner of the city's largest jewelry store, DiamondsRUs.

Ms Swan wants to remodel her store and is applying for $80,000 loan with Planters National Bank. The bank requires the use of accrual basis accounting for financial statements. Ms Swan insists that she has always used cash basis accounting for her jewelry store. She does not see the purpose of using accrual basis accounting and refuses to make year-end adjusting entries.

Required:

Write a (friendly) email to Ms Swan to include the following:

1. Explain the main differences between cash basis and accrual basis accounting.

2. Explain what is the FASB and why it requires the use of the accrual basis accounting for financial external reporting.

3. Explain why year-end adjusting entries are necessary in accrual accounting.

Please use proper format. Your email should include an introduction and proper closing along with 2-3 paragraphs to explain the main points (1-3) above.