Cash Basis – Page 2

PSAF – May 2021 – L2 – Q2b – International Public Sector Accounting Standards (IPSAS)

Explain differences between accrual and cash accounting, justify IPSAS adoption, and describe commitment accounting benefits.

Question

You have received an official memo from your Permanent Secretary, which reads:

Director of Account and Finance: Hope you are doing well. We have just closed from a workshop organised by the Ministry of Finance on public finance management not long ago, and the discussion was all about the adoption of IPSAS accrual accounting in the public sector. It was emphasised that migration from IPSAS Cash Basis to IPSAS Accrual Basis is necessary to improve financial reporting and transparency in the public sector. You know I have little knowledge in accounting, so I was completely lost in the discussions and I wished you had attended the workshop with me.

Another issue discussed was commitment accounting. We were made to understand that commitment accounting strengthens public finance management and therefore all Ministries, Departments and Agencies (MDAs) must ensure that every expenditure is committed in accordance with the appropriation prior to spending.

Please could you help me with some information on these issues?

Required:
Explain to the Permanent Secretary:
i. THREE differences between accrual accounting and cash accounting. (3 Marks)
ii. THREE justifications for adopting IPSAS accrual accounting in the public sector. (3 Marks)
iii. The term “commitment accounting” and illustrate THREE ways it could strengthen public financial management. (4 Marks)

Answer

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Tags: Accrual Basis, Cash Basis, Financial Transparency, IPSAS, Public Finance Management
Level: Level 2

Topic: International public sector accounting standards
Series: MAY 2021

PSAF – Nov 2016 – L2 – Q2a – International Public Sector Accounting Standards (IPSAS)

This question outlines the benefits of migrating from IPSAS-CASH to IPSAS-ACCRUAL basis for public sector accounting.

Question

In an effort to promote accountability and transparency in governance, the
administration has adopted and implemented the International Public Sector
Accounting Standards (IPSAS) from January 2014. The governments (Federal, State,
Local) and other public institutions adopted IPSAS in the reporting and presentation
of financial statements to improve the quality and comparability of financial
information, and to be in conformity with other advanced nations of the world. IPSASCASH is already adopted in the budgeting, accounting and presentation of financial
statements, while IPSAS-ACCRUAL takes effect from January 2016.
You are required to:

Identify any SIX benefits of migration from IPSAS-CASH basis to IPSAS ACCRUAL basis.

Answer

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Tags: Accrual Accounting, Cash Basis, Financial Reporting, IPSAS, Public Sector Reforms
Level: Level 2

Topic: International public sector accounting standards
Series: NOV 2016

FR – Nov 2021 – L2 – Q3a – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)

Discuss the three bases of accounting on which transactions are recognized and measured.

Question

There are three bases of accounting on which transactions are recognized and measured.

Required:
Discuss these three bases of accounting.

Answer

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Tags: Accounting Bases, Accruals, Break-up Basis, Cash Basis
Level: Level 2

Topic: Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)
Series: NOV 2021

FA – Nov 2015 – L1 – SB – Q6a – Bases of Accounting: Accrual vs. Cash

Differentiate accounting bases and discuss a setback of the cash basis.

Question

i. Differences between Accounting Bases

Cash Basis: Recognizes revenue and expenses only when cash is received or paid. It does not match income with expenses incurred in the same period.
Accrual Basis: Recognizes revenue when earned and expenses when incurred, regardless of when cash transactions occur. It provides a more accurate picture of a company’s financial position.
Break-up Basis: Assumes that a business will not continue as a going concern, and assets are valued at their realizable amounts rather than their carrying amounts.

ii. Setback of Cash Basis

It does not provide a true picture of financial performance, as income and expenses may not be recorded in the period to which they relate.

Answer

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Tags: Accounting Concepts, Accrual Basis, Break-up Basis, Cash Basis
Level: Level 1

Topic: Bases of Accounting: Accrual vs. Cash
Series: NOV 2015

FR – May 2018 – L2 – Q5b -Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)

Explain the differences between the accrual, cash, and break-up basis of accounting, with examples

Question

Explain the differences between the accrual, cash, and break-up basis of accounting.

Answer

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Tags: Accounting Methods, Accrual Basis, Break-up Basis, Cash Basis, Financial Reporting
Level: Level 2

Topic: Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)
Series: MAY 2018

FA – May 2018 – L1 – SA – Q8 – Bases of Accounting: Accrual vs. Cash

Identifies the requirement for revenue recognition under the cash basis of accounting.

Question

The cash basis of accounting requires the recognition of revenue only when they are:
A. Due
B. Earned
C. Paid
D. Received
E. Budgeted

Answer

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Tags: Accounting Concepts, Cash Basis, Revenue Recognition
Level: Level 1

Topic: Bases of Accounting: Accrual vs. Cash
Series: MAY 2018

FA – Nov 2021 – L1 – SB – Q4 – Accounting Concepts

This question involves explaining different bases of accounting and the operation of a petty cash book.

Question

a. Accounting concepts are the broad principles and general assumptions underlying the preparation of financial statements.

Required:
i. Explain cash, accrual, and break-up bases of accounting. (6 Marks)
ii. State FOUR limitations associated with the cash basis of accounting. (8 Marks)

b. Mallam Isa is considering setting up a petty cash book from which to pay small expenses, however, he is not sure of how a petty cash book operates.
Required:
Explain to Mallam Isa the operation of a petty cash book. (6 Marks)

Answer

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Tags: Accounting Concepts, Accruals, Cash Basis, Petty Cash
Level: Level 1

Topic: Accounting Concepts
Series: NOV 2021

FA – Nov 2022 – L1 – SB – Q4b – Accounting Concepts

State four limitations of the cash basis of accounting.

Question

State FOUR limitations associated with cash basis of accounting.
(8 Marks)

Answer

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Tags: Accounting Concepts, Cash Basis, Financial Reporting, Limitations
Level: Level 1

Topic: Accounting Concepts
Series: NOV 2022

FA – Nov 2022 – L1 – SB – Q4a – Accounting Concepts

Explain the cash, accrual, and break-up accounting bases.

Question

Accounting concepts are the broad principles and general assumptions underlying the preparation of financial statements.

Required:
Explain the following accounting bases:
i. Cash basis
ii. Accrual basis
iii. Break-up basis
(6 Marks)

Answer

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Tags: Accounting principles, Accrual Basis, Break-up Basis, Cash Basis
Level: Level 1

Topic: Accounting Concepts
Series: NOV 2022

FA – Nov 2023 – L1 – SA – Q10 – Bases of Accounting: Accrual and Cash

Identify the correct description of the cash basis of accounting.

Question

Which of the following statements correctly describes cash basis of accounting?

A. Revenue is recognised in the period when it is earned, regardless of when the cash is received
B. Expenses are recognised in the period when they are incurred, regardless of when they are paid
C. Revenue is recognised in the period when the cash is received, regardless of when it is earned
D. Expenses are recognised in the period when they are earned, regardless of when they are incurred
E. Both revenue and expenses are recognised in the period when they are occurred, regardless of cash transactions

Answer

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Tags: Accounting principles, Cash Basis, Revenue Recognition
Level: Level 1

Topic: Bases of Accounting: Accrual vs. Cash
Series: NOV 2023

FA – May 2016 – L1 – SA – Q1 – Bases of Accounting: Accrual vs. Cash

A question regarding the bases used in preparing financial statements.

Question

Which of the following bases is used in preparation of financial statements?
A. Break up basis
B. Cash basis
C. Accrual basis
D. Modified cash basis
E. Commitment basis

Answer

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Tags: Accounting Bases, Accrual, Cash Basis, Financial Statements
Level: Level 1

Topic: Bases of Accounting: Accrual vs. Cash
Series: MAY 2016

PSAF – Nov 2020 – L2 – Q1a – Accounting policies for cash and accrual-based accounting systems

This question addresses how different accounting bases (cash vs. accrual) affect the treatment of specific items in financial statements.

Question

The Director of Finance and the Principal Spending Officer of a Public Sector Organization are in disagreement as to which basis of accounting will provide the most useful information to the users. The Principal Spending Officer strongly believes that whether an entity applies cash basis or accrual basis, the effect is the same. The Director of Finance disagrees with him totally, arguing that different accounting treatments apply to both and therefore affect the level of disclosure in the financial report. The Director of Finance proceeded to illustrate his point by drawing on the basis of accounting on these items in the financial statement:

i) Motor vehicle donated to the entity

ii) Revenue due but not received by the entity

iii) Furniture acquired in the current year

iv) Electricity consumed for the year but not paid to the Electricity Company.

Required:

The Director of Finance has tasked you to present a brief paper on how the two accounting bases would be applied in the treatment of items i) to iv).

Answer

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Tags: Accrual Basis, Cash Basis, Financial Reporting, Public Sector Accounting
Level: Level 2

Topic: Accounting policies for cash and accrual-based accounting systems
Series: NOV 2020

PSAF – Nov 2023 – L2 – Q1a – General purpose financial reporting framework

Redraft financial statement under cash basis and justify its use.

Question

Revenue		GH₵	GH₵
GOG Subvention		152,000
Internally Generated Fund (IGF)	1	187,000
Donations	4	45,000	384,000

Expenditure

Description		GH₵	GH₵
Compensation	2	68,000
Use of Goods & Services	3 & 5	35,000
Consumption of Fixed Asset		13,000	(116,000)
Surplus			268,000

Additional Information:

The entity received an IGF of GH¢ 13,000 in advance for the year 2023. This transaction is not included in the IGF amount stated in the financial statement.
Included in Compensation is an amount of GH¢ 17,000 accrued as at the end of 31 December 2022.
Excluded from the Use of Goods & Services is an amount of GH¢ 1,000 paid in advance for the year 2023.
Included in Donations is Motor Vehicle received from a donor partner amounting to GH¢ 12,000.
Included in the Use of Goods and Services is Furniture acquired on 31 December 2022 at the cost of GH¢ 2,000.
The Statement of Financial Performance is prepared under Accrual Accounting Basis.

Required:
i) Redraft the financial statement under Cash Accounting Basis for the year ended 31 December 2022, showing the necessary adjustments. (7 marks)
ii) Justify THREE (3) reasons management would want to prepare the financial statement under Cash Accounting Basis. (3 marks)

Answer

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Tags: Adjustments, Cash Basis, Financial Statement
Level: Level 2

Topic: General purpose financial reporting framework
Series: NOV 2023

PSAF – July 2023 – L2 – Q1a – Accounting policies for cash and accrual-based accounting systems

Discuss the conditions for transitioning from cash basis to accrual basis accounting in a public sector entity.

Question

A public sector entity is transitioning from cash basis of accounting to accrual basis of accounting for the 2022 financial year. You are a member of the transitional committee set up to ensure smooth change over.

Required: Discuss FIVE (5) conditions for seamless transition from cash basis of accounting to accrual basis of accounting.

Answer

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Tags: Accounting Transition, Accrual Basis, Cash Basis, Financial Reporting, Public Sector, Transition
Level: Level 2

Topic: Accounting policies for cash and accrual-based accounting systems
Series: JULY 2023

PSAF – Mar 2023 – L2 – Q1a – Accounting policies for cash and accrual-based accounting systems

Explains the assertion that cash basis information can be derived from accrual basis accounting and discusses how accrual accounting provides superior cash information.

Question

In a recent meeting held to discuss the implementation of accrual basis of accounting in your entity, the principal spending officer was apprehensive about how the change from cash basis to accrual basis would impact on accountability for cash. The Director of Finance convinced him that accrual basis provides much superior cash information about the entity and therefore there is no need to be concerned about the transition from cash accounting to accrual accounting. He further stated that “cash basis information could be derived from accrual basis accounting”.

Required:
i) Explain the assertion that “cash basis information can be derived from accrual basis accounting” as stated by the Director of Finance. (4 marks)
ii) Discuss how accrual accounting provides superior cash information about an entity. (6 marks)

Answer

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Tags: Accrual Accounting, Cash Basis, Financial Reporting, IPSAS, Public Financial Management, Public Sector
Level: Level 2

Topic: Accounting policies for cash and accrual-based accounting systems
Series: MAR 2023

PSAF – May 2018 – L2 – Q1d – Accounting policies for cash and accrual-based accounting systems

Contrast cash basis and accrual basis of accounting in terms of revenue recognition, expenditure recognition, non-financial asset disclosure, and depreciation.

Question

There are two main bases of accounting in the public sector, and these are cash basis and accrual basis. These two bases differ in many respects, though there are some similarities.

Required:
Contrast cash basis and accrual basis of accounting in the public sector in terms of:
i) Recognition of revenue
ii) Recognition of expenditure
iii) Disclosure of non-financial assets
iv) Notion of depreciation

Answer

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Tags: Accrual Basis, Cash Basis, Expenditure Recognition, Public Sector Accounting, Revenue Recognition
Level: Level 2

Topic: Accounting policies for cash and accrual-based accounting systems
Series: MAY 2018

Question Tag: Cash Basis

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PSAF – May 2021 – L2 – Q2b – International Public Sector Accounting Standards (IPSAS)

Explain differences between accrual and cash accounting, justify IPSAS adoption, and describe commitment accounting benefits.

You're reporting an error for "PSAF – May 2021 – L2 – Q2b – International Public Sector Accounting Standards (IPSAS)"

PSAF – Nov 2016 – L2 – Q2a – International Public Sector Accounting Standards (IPSAS)

This question outlines the benefits of migrating from IPSAS-CASH to IPSAS-ACCRUAL basis for public sector accounting.

You're reporting an error for "PSAF – Nov 2016 – L2 – Q2a – International Public Sector Accounting Standards (IPSAS)"

FR – Nov 2021 – L2 – Q3a – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)

Discuss the three bases of accounting on which transactions are recognized and measured.

You're reporting an error for "FR – Nov 2021 – L2 – Q3a – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)"

FA – Nov 2015 – L1 – SB – Q6a – Bases of Accounting: Accrual vs. Cash

Differentiate accounting bases and discuss a setback of the cash basis.

i. Differences between Accounting Bases

ii. Setback of Cash Basis

You're reporting an error for "FA – Nov 2015 – L1 – SB – Q6a – Bases of Accounting: Accrual vs. Cash"

FR – May 2018 – L2 – Q5b -Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)

Explain the differences between the accrual, cash, and break-up basis of accounting, with examples

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FA – May 2018 – L1 – SA – Q8 – Bases of Accounting: Accrual vs. Cash

Identifies the requirement for revenue recognition under the cash basis of accounting.

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FA – Nov 2021 – L1 – SB – Q4 – Accounting Concepts

This question involves explaining different bases of accounting and the operation of a petty cash book.

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FA – Nov 2022 – L1 – SB – Q4b – Accounting Concepts

State four limitations of the cash basis of accounting.

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FA – Nov 2022 – L1 – SB – Q4a – Accounting Concepts

Explain the cash, accrual, and break-up accounting bases.

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FA – Nov 2023 – L1 – SA – Q10 – Bases of Accounting: Accrual and Cash

Identify the correct description of the cash basis of accounting.

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FA – May 2016 – L1 – SA – Q1 – Bases of Accounting: Accrual vs. Cash

A question regarding the bases used in preparing financial statements.

You're reporting an error for "FA – May 2016 – L1 – SA – Q1 – Bases of Accounting: Accrual vs. Cash"

PSAF – Nov 2020 – L2 – Q1a – Accounting policies for cash and accrual-based accounting systems

This question addresses how different accounting bases (cash vs. accrual) affect the treatment of specific items in financial statements.

You're reporting an error for "PSAF – Nov 2020 – L2 – Q1a – Accounting policies for cash and accrual-based accounting systems"

PSAF – Nov 2023 – L2 – Q1a – General purpose financial reporting framework

Redraft financial statement under cash basis and justify its use.

Expenditure

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PSAF – July 2023 – L2 – Q1a – Accounting policies for cash and accrual-based accounting systems

Discuss the conditions for transitioning from cash basis to accrual basis accounting in a public sector entity.

You're reporting an error for "PSAF – July 2023 – L2 – Q1a – Accounting policies for cash and accrual-based accounting systems"

PSAF – Mar 2023 – L2 – Q1a – Accounting policies for cash and accrual-based accounting systems

Explains the assertion that cash basis information can be derived from accrual basis accounting and discusses how accrual accounting provides superior cash information.

You're reporting an error for "PSAF – Mar 2023 – L2 – Q1a – Accounting policies for cash and accrual-based accounting systems"

PSAF – May 2018 – L2 – Q1d – Accounting policies for cash and accrual-based accounting systems

Contrast cash basis and accrual basis of accounting in terms of revenue recognition, expenditure recognition, non-financial asset disclosure, and depreciation.

You're reporting an error for "PSAF – May 2018 – L2 – Q1d – Accounting policies for cash and accrual-based accounting systems"

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