High School Finance Teacher
Accrual vs. Cash Basis Accounting
Alicia Wiley
Grantham University
Abstract
In this paper I have defined accrual and cash basis accounting. Also, I have answered the following questions: Explain the difference between the accrual basis of accounting and the cash basis of accounting. What are the major reasons for using accrual accounting? What are the purpose of a journal and a ledger? Give an example of a contra-asset, and explain how it is recorded on the ledger as a transaction. Explain what a “prepaid expense” is and how it is recorded on the ledger as a transaction. What are the major differences in recording transactions for a for-profit organization versus a not-for-profit, or are there any? List and record each transaction for S. Zee Outpatient Clinic under the accrual basis of accounting at December 31, 20X1, then develop a balance sheet as of December 31, 20X1, and a statement of operations for the year ended December 31, 20X1. How do capital structure rations and liquidity rations differ in providing insight into an organization’s ability to pay debt obligations? Identify and explain two situations where an organization might have increasing activity rations but declining profitability.
Explain the difference between the accrual basis of accounting and the cash basis of accounting. What are the major reasons for using accrual accounting? Cash accounting and accrual accounting are two similar methods of maintaining accurate accounting records. While the two approaches share many aspects in common, there are two key differences that distinguish each method from the other. Essentially, the difference between cash accounting and accrual accounting boils down to the way debits and credits are applied in the bookkeeping process.
To understand the difference, it is first necessary to define each type of accounting process. Cash accounting, which is also known as cash basis accounting, allows for the recognition of income at the time it is actually
Alicia Wiley
Grantham University
Abstract
In this paper I have defined accrual and cash basis accounting. Also, I have answered the following questions: Explain the difference between the accrual basis of accounting and the cash basis of accounting. What are the major reasons for using accrual accounting? What are the purpose of a journal and a ledger? Give an example of a contra-asset, and explain how it is recorded on the ledger as a transaction. Explain what a “prepaid expense” is and how it is recorded on the ledger as a transaction. What are the major differences in recording transactions for a for-profit organization versus a not-for-profit, or are there any? List and record each transaction for S. Zee Outpatient Clinic under the accrual basis of accounting at December 31, 20X1, then develop a balance sheet as of December 31, 20X1, and a statement of operations for the year ended December 31, 20X1. How do capital structure rations and liquidity rations differ in providing insight into an organization’s ability to pay debt obligations? Identify and explain two situations where an organization might have increasing activity rations but declining profitability.
Explain the difference between the accrual basis of accounting and the cash basis of accounting. What are the major reasons for using accrual accounting? Cash accounting and accrual accounting are two similar methods of maintaining accurate accounting records. While the two approaches share many aspects in common, there are two key differences that distinguish each method from the other. Essentially, the difference between cash accounting and accrual accounting boils down to the way debits and credits are applied in the bookkeeping process.
To understand the difference, it is first necessary to define each type of accounting process. Cash accounting, which is also known as cash basis accounting, allows for the recognition of income at the time it is actually