Memo To Management

MEMOTo: ManagementDate:March 2, 2018From:Chief Financial OfficerSubject:Accounting Method to EmployThe two common accounting methods employed by organizations to report their financial statements comprise; cash and accrual accounting method. At the center of the two accounting methods (cash and accrual), their differentiating factor, is timing as to when to reflect or recognize the purchases or sales in the accounting books. In cash accounting, the returns and outlays are usually and recognized only after there has been a complete exchange of money. In contrast, the accrual accounting method recognizes returns and outlays when earned and when billed respectively, as opposed to when there is exchange of money.Going by the explanation given on cash accounting method, we can conclude that the approach does not acknowledge accounts payables and accounts receivable. Using this approach, it would be difficult for BizCon to record a positive net income while at the same time having run out of cash. On the other hand, the accrual accounting approach reflects in the books of accounts incomes and outlays when earned, and does not pay attention to the time or day when the exchange or transfer of money will be done. This makes accrual basis the most preferred and recommended approach