Accrual basis accounting is in conformance with IRS and generally accepted accounting
principles (GAAP) regulations. Although more complex and generally requiring greater
bookkeeping with a more sophisticated approach to accounting, the accrual basis provides a
more accurate indication of the profitability of a business. The major drawback of the accrual
basis system comes with respect to understanding the business’s cash position. A firm may look
profitable under this system, but if customers have not paid for the goods and services, the cash
position might be dire.
The organization of the marketing function itself can also be seen as a means of control.
However, there are drawbacks to the cash basis approach—the most serious being that
it may provide a distorted or an inaccurate indication of profitability. The reality is that cash
basis accounting systems are really only appropriate for businesses with sales under $1 million
and that function basically on a cash basis.
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