Over the years, we have had our clients decide on the kind of accounting methods that they want their accounts handled and at most times they make us use one or more accounting methods. Most of the clients are guided by what according to research, they consider as convenient. However, according to most of the complaints that are getting received, some of the clients are making huge losses in their businesses. Over the twenty years that this firm has been operational, there is a tendency of the starting businesses to remain in operation for three years and then they are bankrupt. I am for the opinion that the greater problem that leads to the demise of these businesses is the accounting criteria that are being applied for the various businesses firms. If the problems that were leading to the exit of the clients in the market were not operational accounting but business running related, then our firm may be able to retain a lot of clients and therefore increasing our profitability as our operations increases.
Most businesses get to the blunt side due to the tax burden on their operations. To be able to arrive at the required tax, we usually use the accounting periods that usually accounts annually and the operations that have taken place in that time flame work. Here are two accounting methods that have to be adopted. There is the Accrual accounting method and there is the cash accounting method. Accrual accounting method is a method whereby all transactions are updated immediately they have occurred (Gibson & TMW Media Group, 2009). This is in disregard to the time when there is the delivery of the item or the item is paid for. On the other hand, the cash system is where you update transactions when the delivery has been made or the payment has been remitted. For instance if a sale was made on October and the payment was made in January, according to the Accrual method, the update will be made in October but in the cash system, the update will be made in January. Our main casualties are the small business entities. To clarify on the need to settle for one accounting method for these business entities, we could set criteria for these businesses and see if there will be changes in the profitability in the next fiscal year (Chesla, 2000).
Criteria of choosing from the alternatives
For the cash system and the Accrual we can subject businesses with the following, first they should have a turnover of less than three million dollars per year. Secondly, they should have a tax levy pay of not more than a million dollars per annum. Thirdly, we can consider any enterprise that could run on a cash system or the Accrual system regardless of the tax figure that it is subject to. These enterprises could include scholarly institutions and charity organizations. The fourth consideration could be firms that have always made their tax levies on either the basis of cash system entirely or the accrual system entirely. These we subject them to the preference that they have always held. Lastly we could consider enterprises on the basis of preferences to avoid a contradictory situation with the clients on the basis of handling their accounts. In this the firm will have to be consulted and they shall give a feedback on what they would rather have (Aristotle et al, 2011).
Conducting the research
At the beginning of the fiscal year, the firms that will be chosen in the above test hypothesis will be classified for their transaction to be considered under the cash or the Accrual systems. For the fiscal year, all their transactions will strictly be in the above criteria, this should be done for the next three fiscal years. Three years is the threshold time framework that has been identified for a joining business to exit the business. At the end of this time, the businesses that have been under evaluation will be investigated as whether existing or demolished. How they shall be fairing and coping up with the tax system (Hubbard, 2007). The system that will have yielded a greater percentage of success will become the guiding principle. When the favorite alternative is chosen as an accounting firm it should be the firm’s principle to give the upcoming firms on the accounting method that would best suit for their existence in the market.
Aristotle, ., Mayhew, R., Mirhady, D. C., & Anaximenes, . (2011). Problems. Cambridge, Mass:Harvard University Press. Chesla, E. L. (2000). Practical solutions for everyday work problems. New York: LearningExpress. Gibson, J., & TMW Media Group. (2009). Work problems. Venice, CA: TMW Media Group. Hubbard, L. R. (2007). The problems of work: Scientology applied to the workaday world. LosAngeles, Calif: Bridge Publications, Inc.