Explain the differences between cash and accrual accounting ...

[Pineappleeh]

Explain the differences between cash and accrual accounting methods.

Question 2

Why might it be unfavorable for a firm to reduce repairs and maintenance, advertising, and research and development expenses?
 
  What will be an ideal response?

[javimendoza7]

Answer to Question 1

The cash basis of accounting records revenue when cash is received and expenses when cash is paid. Under the accrual method, revenues are recorded when earned, and expenses are recorded when incurred. This method is more complicated and time consuming than the cash method.

Answer to Question 2

Spending too little in these areas can impact the firm negatively. In capital intensive industries it is important for management to properly maintain plant and equipment. Expenditures in this area should correspond to the level of investment in capital equipment and to the age and condition of the assets. Poorly maintained equipment will result in waste and lost time and possibly poor quality products. Customers may choose to purchase products elsewhere, resulting in a decline of sales.Advertising is critical for certain types of industries. For example, firms operating in the beverage industry generally gain market share through extensive advertising. High-technology and pharmaceutical firms would cease to exist if they did not spend a certain amount on research and development. These industries depend on developing new products each year.