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Cash vs. Accrual by Narinder Schoeling 1 Cash vs. Accrual: Is there a difference in recognizing transactions Narinder Schoeling Ashford University Online Campus ACC 206 Principles of Accounting II Professor Emily King's May 15, 2009 Cash vs. Accrual by Narinder Schoeling 2 Abstract In this paper, I will reflect on Accounting concepts and principles that accountants have used to guide their work within the company. I learned a lot from this course and I will use that to help write this paper. In the following paper I will discuss my ideas on how the functions of accrual accounting verses cash basis account work within a company and witch increase the effectiveness and contribution to the organization of the businesses books and cash flow to reach the final objective. I will also discuss the impact of the accounting period has on a business. This will be done through identifying the functions the revenue principle and the matching principle. I will explain how to record transaction on the books. Also last I will discuss how these aspects work together to perform that primary functions of accounting. All of this will be discussed in depth in the following paper. Cash vs. Accrual by Narinder Schoeling 3 Cash vs. Accrual: Is there a difference in recognizing transactions I will use what I have learned in this course to show how companys uses the accounting process within a company. How corporations use accrual accounting verses cash basis accounting contributes to an organization. How corporations use accounting to update the accounts using a process called adjusting the books. I will also discuss the impact of adjusting the books it requires special journal eateries. I will also discuss the impact of the accounting period on a business. This will be done through identifying the functions the revenue principle and the matching principle. I will explain how record transaction on the books. Also last I will discuss how these aspects work together to perform that primary functions of accounting. Cash vs. Accrual Every business must decide witch method to use the cash or accrual accounting. The difference between the two accounting processes is in how cash transactions are record. Cash and accrual accounting are similar in their methods of maintaining accurate accounting records. While they share many aspects in common, there are two differences between cash and accrual accounting is in the way debits and credits are applied in the bookkeeping process. To understand the difference, we must first define each type. Cash-based accounting Method Cash-basis accounting, records only cash receipts and cash payments. Allows for the recognition of income at the time it is actually received. I t ignores the account receivables, account payables, and depreciation and only records cash receipts and cash payments (Horngren, C. T. & Harrison W. T., 2007). Cash-based accounting recognizes income when money is received. This means that invoiced income is not counted as an asset until payment for the invoice is actually in hand. The same approach is applied to debits, in Cash vs. Accrual by Narinder Schoeling Cash vs.... View Full Document

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