Week 2 EOC: Question 4

a. Which accounting method, Lisa's accrual accounting or Laura's cash accounting, shows a higher net profit? Lisa's Accrual Accounting shows higher net profit.

b. Which accounting method shows the most accurate amount of money on hand to pay bills? Laura's Cash Accounting shows the most accurate amount of money on hand. "Alternatively, a cash accounting system is a method that records revenue as being earned when it is actually recieved." (49)

c. Which accounting method most accurately shows the revenues generated regardless of when they were received? Lisa's Accrual accounting is the most accurate way to show the revenues generated regardless of when they were recieved. "In an accrual accounting system, revenue is recorded when it is earned, regardless of when it is collected." (49)

d. Which accounting method most accurately shows the expenses incurred regardless of when they were paid? Lisa's Accrual accounting is the most accurate way to show the revenues generated regardless of when they were recieved.

e. Which accounting method most accurately shows actual cash inflows and outflows?

Laura's Cash Accounting most accurately shows actual cash inflows and outflows.

f. Which accounting method shows the most accurate reflection of their restaurant’s true profitability? Lisa's Accrual Accounting shows the most accurate reflection of their restaurant's true profitability. "The two choices accountants have in this area are that of selecting an accrual system or a cash system as their basis for reporting revenue and expense." (49)