Accrual Basis Accounting Vs. Cash Basis Accounting
Accrual basis accounting means that regardless if cash was received or not between companies, any transaction that alters a company’s financial statements are recorded in the periods in which the events occur. Also, under accrual basis accounting, companies begin to note expenses when they are acquired even if cash was not paid. For example, even when cash was not received, the company recognizes the revenues as they are earned. On the other hand though, in cash basis accounting, companies will only record the revenue when there is cash being received. The companies will only record expense when the cash is paid. As opposed to the accrual basis accounting, cash basis accounting is a prohibited method under the generally accepted accounting principles. It is not recognized because it violated the revenue recognition principle by not recording revenue when it is earned(c04AccrualAccountingConcepts.qxd Page 162). An accountant may use the cash basis accounting method without violating the generally accepted accounting principles if they are bookkeeping for a small business. This works because smaller businesses require less labor intensive accounting primarily because small businesses typically cannot afford to hire an entire accounting staff. The main reason that this form of accounting is not intended for large companies is because public companies have to document correctly every aspect of financial transactions. Because cash basis accounting disregards the revenue collected, this is a violation and may be seen as fraud(http://www.insidebusiness360.com/index.php/in-electronic-based-society-cash-basis-accounting-does-not-mesh-as-well-16751/).
University of Phoenix. (2014). Financial Accounting. Retrieved from University of Phoenix, XACC/290 website.
Goessi, Leigh (2009). In electronic based society cash basis accounting does not mesh as well....
References: University of Phoenix. (2014). Financial Accounting. Retrieved from University of Phoenix, XACC/290 website.
Goessi, Leigh (2009). In electronic based society cash basis accounting does not mesh as well. http://www.insidebusiness360.com/index.php/in-electronic-based-society-cash-basis-accounting-does-not-mesh-as-well-16751/
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