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Brain Teaser 4: Cash Basis or Accrual Basis a) Use FARS to identify what standards-setters have said as to the superiority of accrual accounting relative to a cash basis. Do you agree with the justification for accrual accounting? Explain?
The FASB has stated that the accrual-basis method is superior to the cash-basis method. For example, the accrual-basis method promotes the caution and equivalent concepts, which are two of the fundamental accounting concepts. Thus, dissimilar to the cash-basis method, financial statements indicate the actual responsibilities of an organization and what resources the organization actually possesses. This means the accrual basis method offers a more precise depiction of the financial status of the reporting organization. Statement No. 106 lists the objectives proposed/used by the Financial Accounting Standards Board. http://www.fasb.org/jsp/FASB/Pronouncement_C/SummaryPage&cid=900000010215 b) Identify which accounting pronouncement specifically observes: This Statement relies on a basic premise of generally accepted accounting principles that accrual accounting provides more relevant and useful information than does cash basis accounting.
This statement is part of the Financial Accounting Standards Boards Statement of Financial Accounting Standard No. 106, which challenges Employees Accounting for Postretirement Benefits Other Than Pensions, this Statement was announced in 1990. http://www.fasb.org/jsp/FASB/Pronouncement_C/SummaryPage&cid=900000010215 c) When is a cash-basis method used within the accounting literature? Do you view such a method as complementary or preferable to accrual accounting in the settings you have identified?
The cash-basis method is used by small organizations/companies, including some not-for-profit organizations. In my opinion, the cash-basis method is more complementary or

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