Question

If you were tasked with starting a new healthcare clinic, would you lean toward using the cash or accrual method of accounting? Why? How would revenue recognition and expense-matching principles be related to your decision.

Answer 1

Answer

if you were tasked with starting a new healthcare clinic, would you lean toward using the cash or accrual method of accounting? Why?

When you start a small business, there are a number of initial decisions you have to make. One of those decisions is what type of accounting method you are going to use in your small business. How are you going to record your financial transactions? You can use either a cash system of accounting or accrual accounting. Which method of accounting you choose depends on several factors.

In the real world, not many businesses operate on a purely cash accounting method because you often sell products and are paid later or other types of transactions occur and payment or income is received at a later time. Using an accrual accounting method gives you a better picture of your income and expenses and, as a result, your profitability.

How would revenue recognition and expense-matching principles be related to your decision.

The matching concept exists only in accrual accounting. This principle requires that you match revenues with the expenses incurred to earn those revenues, and that you report them both at the same time.