WEEK 2 EOC: QUIZ 2, QUESTION 4

Answers:

a Lisa's accrual accounting shows a higher net profit when compared to the cash accounting.

“In an accrual accounting system, revenue is recorded when it is earned, regardless of when it is collected, and expenses are recorded when they are incurred, regardless of when they are paid.” Dopson, Lea R. Managerial Accounting for the Hospitality Industry. Wiley, 09/2008. VitalSource Bookshelf Online.

b. Laura's cash accounting shows the most accurate amount of money on hand. 

c. The accounting method that most accurately shows the revenues generated regardless of when they were received is cash accounting.

d. The accounting method that most accurately shows the expenses incurred regardless of when they were paid is cash accounting.

“The major advantage to using a cash accounting system is its simplicity. If you have a checking account, you already understand how a cash accounting system works. When you make a deposit into your checking account, you add to your cash balance.” Dopson, Lea R. Managerial Accounting for the Hospitality Industry. Wiley, 09/2008. VitalSource Bookshelf Online.

e. The accounting method that most accurately shows the outflows and inflows is cash accounting.

“You have learned that accountants use a double entry accounting system to record each of a business’s financial transactions twice. Doing so helps minimize the chance of making a recording error and helps ensure that The Accounting Formula stays in balance.” Dopson, Lea R. Managerial Accounting for the Hospitality Industry. Wiley, 09/2008. VitalSource Bookshelf Online.

f. The accounting method that shows the most accurate reflection of their restaurant’s true profitability is cash accounting.