DeepTech Agency

A modest company

A modest company called DeepTech Agency sells parts and equipment for home electronics. The company has five full-time employees and one contract accountant. The accounting books clearly show that the corporation follows the cash basis approach of accounting. Only when money is received or spent are transactions recorded in the company’s books (Mills & Bible, 2011, p.5). Checks and credit card transactions are only recorded on the day that the funds, whether received or spent, appear in an account (Beechy, 2007, p.12). Transactions that are made before maturity dates are void.

The business relies on a hired accountant

The business relies on a hired accountant to assist with its accounting requirements. One of the main advantage the company has by using an independent contractor is reduced expenditure. The company saves a lot of money as compared to hiring a full-time accountant. Another advantage is staffing flexibility (Christ, Sedatole, & Towry, 2012, p. 1935). It gives the company a greater leeway in hiring and letting go of workers, which is especially advantageous given the company’s fluctuating workloads. It, therefore, allows the company to hire an IC for a particular task. Lastly, through this method, the company reduces the exposure to lawsuits, because ICs are independent businesspeople, therefore not protected by most state and federal labor laws.

The main disadvantage

The main disadvantage the company faces is a lack of control over the worker, allowing limited space to closely supervise and monitor (Christ, Sedatole, & Towry, 2012, p. 1935). The other disadvantage is the unrestricted right to fire an independent contractor, sine the right to fire depends on a written agreement.

One the new things I learned was

One the new things I learned was that for an accounting system to be considered cash basis model, the transactions must involve the actual flow of cash, be it cash received or cash spent. If payment is made by either check or credit card, under cash basis, the recording of the transaction will be on the day the payment matures.

References

Beechy, T. (2007). Does full accrual accounting enhance accountability. The Innovation Journal:

The Public Sector Innovation Journal, 12(3), 1-18.

Christ, M., Sedatole, L., & Towry, L. (2012). Sticks and carrots: The effect of contract frame on

effort in incomplete contracts. The Accounting Review, 87(6), 1913-1938.

Mills, J., & Bible, L. (2011). Toward student development of a better understanding of the cash

flow statement. Journal of Applied Business Research, 18(4), 1-8.