Week 2 EOC: Chapter 2 Question 4

a. Even though both methods ended with a net profit, Laura's Cash Accounting method ended with a Net Loss of ($7,850). "Those businesses that routinely generate cash in excess of their immediate needs for it are said to have a “positive cash flow.”. That is, more cash is flowing into the business than is being removed from it. Those businesses that do not generate enough cash to support their operations are said to have a “negative cash flow." Dopson, Lea R. Managerial Accounting for the Hospitality Industry. Wiley, 09/2008, pg.143. VitalSource Bookshelf Online.

b. Laura's Cash Accounting method shows the most accurate amount of money on hand to pay bills.

c. Lisa's Accrual Accounting accurately shows the revenues generated regardless of when they were received.

d. Laura's Cash Accounting most accurately shows the expenses incurred regardless of when they were paid. "While many in business feel that cash inflows from interest or dividends would be better considered as investing or financing activities, the FASB classifies them as operating activities (which means you must also!)." Dopson, Lea R. Managerial Accounting for the Hospitality Industry. Wiley, 09/2008, pg.157. VitalSource Bookshelf Online.

e. Lisa's Accrual Accounting method most accurately shows actural cash inflows and outflows.

f. Lisa's Accural Accounting method shows the most accurate reflection of their resturant's true profitability. "The accrual system instructs accountants to record expenses when they are incurred regardless of when they are paid". Dopson, Lea R. Managerial Accounting for the Hospitality Industry. Wiley, 09/2008, pg.49. VitalSource Bookshelf Online.