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Cash and accrual accounting - Essay Example
Finance & Accounting
Pages 5 (1255 words)
Name: Professor: Course: Date: Introduction The goal of the company is to have a profitable business that maximizes the profit, and make sure they prepare and keep their financial report. There are two significant accounting techniques that are utilized to maintain recording of the business…
Meanwhile, accrual basis is accounting techniques that transactions are recognized when item is delivered, and revenues are recorded when they are earned. Although, the two methods are both accounting method and used to record transactions, they are different in various ways and the paper will evaluate the difference of the two accounting methods used to recognize transactions. Cash vs. accrual accounting Accrual-basis financial statements give more practical information than cash-basis statements because the accrual-basis is a method that is recognized by the generally accepted accounting principles (GAAP). However, the cash basis statement is not useful as accrual basis because it is not recognized by the GAAP. Meanwhile, the accrual basis ensures firms have recorded transaction in the period that the event has occurred. For instance, to establish the net income it will require the company to recognize revenue when it was earned but not when it received the cash. Meanwhile, the company under the accrual basis will recognize the expenses at the period when they are incurred and not the period when they are paid. Conversely, the companies that use cash basis accounting can record revenues when they get cash, and record an expense when they pay out cash. ...
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