Process Financial Transactions and Extract Interim Reports

Answer 1

The imprest system is the common form of accounting. There are different systems are in imprest system but the most common imprest system is petty cash system. In imprest system, a fixed amount is reserved and it remains dormant. The amount reserved for a certain time was spent in that time. For example, if the petty cash custodian is entrusted with a locking bag containing $100 of currency and coins, then the Petty Cash account will always report a debit balance of $100. This $100 is the imprest balance. As long as $100 is adequate for the organization’s small disbursements, then the general ledger account Petty Cash will never have an entry again (Deegan, 2013).

Answer 2

Accrual method of accounting is the method of accounting where the income and expenses are recorded in the books of accounts when they occur whether the cash is received or not. The main benefit of this method it shows all the expenses and revenues in the period it occurs. When the money is received then cash transactions is recorded and accrual entries are reversed. In accrual accounting, adjusting entries are made at the end of accounting period. The actual profitability of the business is reflected from the accrual method of accounting (Scott, 2015).  The correct profit or loss of that period is shown in the financial statements and it presents a correct picture of the business. Some of the examples of accrual are accrued interest, outstanding wages, and unearned income. 

Answer 3

Cash accounting is the method of accounting in which receipts are recorded in which they are received and payments are recorded when they are actually paid. In other words, it can be said that the income and expenses are recorded when they are received and paid. The use of cash accounting is mainly seen in the small business as no adjusting entry is made at the end of accounting period. This method is simple to use and it is more straightforward. The benefit of this method is it gives a clear view of how the cash of the company is spent.For example, a company receives $10000 from the sale of computers then the transaction will be recorded when the cash is received. It is not affected from whether they the expense is incurred or not. The main disadvantage of this method is it fails to provide a clear and accurate picture of the business. The profit or loss calculated in this method is not correct. This method can change the position of the business.

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