accrual method

Topics: Cash flow, Income statement, Generally Accepted Accounting Principles Pages: 2 (687 words) Published: February 2, 2014


Accrual Method
Accrual accounting is more accurate on the “timing” of reported revenue and expenses. In cash basis accounting for instance, when you have shipped out the goods out of your warehouse to the customer and they have receipt, but haven’t received the cash, you didn’t book the revenue. However, when it comes to Accrual, providing you satisfy the revenue recognition principles, you can already book the revenue. In accrual accounting you have non-cash items on the books for a particular accounting period. Accrual accounting is important because it recognizes incomes when goods are shipped or services are rendered. When it comes to an accrual system, revenue does not equal cash. “Typically, revenue and cash won’t equal in a given period if you use accrual accounting. If you collect cash from a customer at the time an order is placed, it is recorded the same, whether you use cash or accrual reporting. However, if you record revenue at the time of order, but the actual payment is to come later, your revenue goes up at that time, while your cash is unaffected.” ("Revenue", 2013).  The statement of cash flows tells you how much cash went into and out of a company during a specific time frame. The statement of cash flows is very important to investors because it shows how much actual cash a company has generated.

Accrual Method
Accrual accounting is more accurate on the “timing” of reported revenue and expenses. In cash basis accounting for instance, when you have shipped out the goods out of your warehouse to the customer and they have receipt, but haven’t received the cash, you didn’t book the revenue. However, when it comes to Accrual, providing you satisfy the revenue recognition principles, you can already book the revenue. In accrual accounting you have non-cash items on the books for a particular accounting period. Accrual accounting is important because it recognizes incomes when goods are shipped or services are rendered. When...
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