Question

Jacob is a nutritionalist who is in the process of setting a large group practice. He expects that the group will have gross receipts of $20,000,000 in the first year and grow by 4% each year. In addition to providing nutritional counseling services the group will sell vitamins, DVDs, and small exercise equipment such as hand weights and mats for stretching The revenues for these products is expected to be about 5% of the total revenue earned each year. Jacob's group would like to use the cash method of accounting if allowed. Please prepare a memo discussing whether Jacob's group will be able to use the cash method of accounting.

Answer 1

The cash method of accounting, also known as cash-basis accounting, cash receipts and disbursements method of accounting or cash accounting records revenue when cash is received, and expenses when they are paid in cash

Accrual of something is, in finance, the adding together of interest or different investments over a period of time. It holds specific meanings in accounting, where it can refer to accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting.

Here they have gross reciepts of $20,000,000 but the other income is expected to earn on the basis of total revenue earnings for the period hence they can follow cash basis bet it is better to follow accrual concept to take a good decision about there growth.