Basis of accounting refers to the body of accounting principles that determines when the effect of a financial transaction or event should be recognized for financial reporting purposes. It is a set of rules that determine when revenues and expenditures are recognized in the books of accounts. Unlike Private Business Accounting, many different basis of accounting is accepted in Public Sector Accounting. However, in recent times, there have been strong advocate by the body of Accountants and some NGOs that Ghana should adopt Accrual Basis of Accounting in the Public Sector as in the Private sector to increase the level of accountability in the Public Sector. Required: Justify with five (5) reasons why in your opinion, the Accrual Basis of Accounting should be adopted by Ghanaian State entities in preparing their Financial Reports and give five (5) possible challenges they are likely to encounter by adopting the Accrual Basis of Accounting.

The Accrual Basis of Accounting is defined as a method used by the company to document the transactions when the event is added together rather than when cash is received.

The advantages or reasons of adopting Accrual Basis of Accounting and it's challenges is stated below in the explanation section.

Explanation:

Solution:

Accrual Basis of Accounting is refers to a tool used by the company to document the transactions when the event is added together rather than when cash is received.

The following are reasons in adopting Accrual Basis of Accounting which is stated below:

The challenges encountered while adopting  the Accrual Basis of Accounting is stated below:

1) the stages a new product goes through from beginning to end, i.e., the stages that a product passes through from introduction through growth, maturity, and decline. 2) the time from initial research and development to the time at which sales and support of the product to customers are withdrawn. 3) the period of time during which a product can be produced and marketed profitably.

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