Reference no: EM132641978

You are a new accountant at a salon. The salon had previously used cash basis accounting to prepare its financial records but now considers switching to an accrual basis method. You have been tasked by the owner with determining if this transition is appropriate. When you go through the records you notice that this transition will greatly impact how the salon reports revenues and expenses. The salon will now report some revenues and expenses before it receives or pays cash.

You are tasked with creating a document for the owner that addresses the following:

Question 1: How will change positively impact its business reporting?

Question 2: How will change negatively impact its business reporting?

Question 3: As the accountant, would you recommend the salon transition from a cash basis to an accrual basis?