[plzhelpclule123]

You have started a sole-proprietorship business. It is a department store selling groceries. You receive payment for the sales made either through a credit card or cash. You pay your suppliers on a credit basis of 30 days. To efficiently manage accounts for your sales and purchases, will you prefer the Accrual basis accounting or the Cash basis accounting? Discuss.

This is what I came up with, please let me know if I'm on the right track: I would use the cash basis accounting because it is a sole propietorship business which would most likely be a small business. The accrual basis of accounting is used mostly for large businesses or corporations.

[morgaine300]

the accrual basis of accounting is used mostly for large businesses or corporations.

Absolutely not true. I've done accrued basis for every business I've ever worked for, and all of them have been very small businesses. And I don't mean "small" by the government's definition. I mean small small. I'm not really sure where you've gotten this idea from.

The only time I ever did cash basis was when I was doing some private work out of my home, and I did cash for myself. If I'd done accrued, there really wouldn't have been much, if any, differences.

You need to be thinking more along the lines of the circumstances, not the size of the company. Keep in mind that cash basis you're recording revenues when you get the cash and expenses when you pay the cash. Accrued basis you're recording revenues when you earn them and expenses when you incur them. You need to be thinking about that, and then relate to the circumstances of the grocery store.

(I think either answer could be correct and it's somewhat opinionated, and I know which I'd pick, but I think your reasoning behind your answer is more important. But it's certainly not true that only large business do accrued.)

P.S. being incorporated also has nothing to do with it. Like most people, you're thinking of a corporation as some big conglomerate. You can incorporate. Are you a big conglomerate? Publicly traded corporations must follow GAAP, which calls for accrued. But do you know how many corporations are out there that aren't publicly traded and are very small? Lots. And lots.