Cash Vs. Accrual Accounting Analysis

by a searcher from Carleton College

2 years ago

Hi All,

I am looking to purchase a landscaping  maintenance company in California.  I was told that their P&L Statements are prepared with the "Cash Accounting" methodology.  I know cash accounting becomes an issue when you one is looking to interpret the productivity of the business as well as the true annual and monthly free cash flow.  

Does anyone have any advice regarding how I should go about my initial analysis without ordering a QoE report?  Is there a particular way I should be reviewing the financials, given that the accounting is currently utilizing the cash accounting principles?

Thank you in advance for your assistance.

-John

3 likes
180 views
8 comments

searcher from United States Naval Academy

I’ve found for simpler business it’s easier to conduct initial diligence with cash accounting and consider the difference at the time of the QofE

7 months ago | like reply | 0 likes

searcher from Arizona State University

I'm under LOI with a construction contractor company. They use cash accounting for all of their financial statements. I've hired a CPA to help me with the fin due diligence and she requested the seller run a transaction detail by account report. When I asked the seller that, he responded by saying that's it's an unusual request and I'm not buying the history, it's an asset sale not a stock sale. I'm hoping he just misunderstood the purpose because I didn't really explain why. Any thoughts on why he would balk on sending that? I trust the seller and don't think he is trying to hide things or pad the earnings. But I could be wrong.

2 years ago | like reply | 0 likes

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