Business Accounting and Finance: Revenue, Assets, Cash vs Accrual Basis, Balance Sheet Equation

RUNNING HEAD: BUSINESS ACCOUNTING AND FINANCE
Accounting

Business accounting and finance 2
Question 1
Revenue
The amount received by the company from sale of its goods and services or products is
known as revenue. The figure of revenue is reported at the top of company’s income
statement, out of which all the operating and non-operating expenses are deducted to identify
the net profit made by the entity during the year (Label, 2006). Whenever a company make
sales either on cash basis or on credit, it sacrifices some of its assets or products, in the return
of which a particular amount is generated which means revenue for the corporation. It is also
known as sales or turnover which has a significant impact on the profits of a company
(Horngren, 2008).
Assets
The tangible and intangible things which are owned by the company and have a value are
known as assets. They appear on the organization’s balance sheet with their ending balances.
In other words, assets represents the resources required by an entity to operate and function
properly and effectively within the industry. Generally, on the statement of financial position
of an organization, the amount of assets are listed in the order of liquidity (Collier, 2015).
First, all the current assets of the firm are reported which can be easily converted into cash
such as inventory, cash, receivable and others. After that all the non-current assets like
building, plant and machinery and many more are reported which, are going to provide
benefits to the company for long run (Salas & Campos, 2016).
Yes, it is true that sales made on credit do fit the above definitions. Credit sales include two
components that are accounts receivables and sale of a product. In this transaction, the
company has made a sale though it is not in cash but it has sold some of its assets in order to
generate revenue. So, it can be said that the revenue is been generated in credit sale but yet

Business accounting and finance 3
not received. However, the entry for this transaction will be reported in books of accounts
because many of the companies apply accrual concept in their accounting practices.
Difference between cash and accrual basis
Basis Cash accounting Accrual accounting
Meaning Under this method, the
recognition of revenue, income
and expenses is done only when
the cash is received or paid.
The method in which income and expenses
are recognized in the books of companies,
irrespective of the fact that whether the cash
is received and paid or not.
Nature It is very simple to understand. It is complex by nature.
Method Not recognized as per
Companies Act
Recognized according to the act
Accuracy The chances of reporting
accurate and reliable data is less.
It has comparatively high accuracy as it is
not dependent upon the inflow and outflow
of cash.
(Tracy, 2016).
Advantages and Disadvantages
Cash basis
Benefits
 It is easy method to understand as compare to other accounting methods. It is suitable
for small size business where there is no need to hire a professional accountant.
 It is just like a cash flow statement which records the actual movement of cash within
the business. It shows the true picture of company’s liquidity position.