ACCT 8-27 Cash vs. Accrual Basis

ACCT 8-27 Cash vs. Accrual Basis - Cash Basis vs Accrual...

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Cash Basis vs. Accrual Basis of Accounting: Cash Basis Companies traded on any stock exchange can’t use o Revenues recognized when the cash is received o Expenses recognized when the cash is paid Accrual Basis o Revenues recognized when earned (i.e. when goods are delivered or services performed) o Expenses recognized as incurred to produce revenue o The matching principle 1 st step: recognize revenue, 2 nd step: apply matching principle to record all the expenses accrued in the good or service Cash Basis: Advantage easy to use and understand Disadvantages o can be easily manipulated o reported amounts can be misleading o less relevant to external decision makers Accrual Basis: Advantages o A better measure of economic activities during the accounting period o Relevant o external decision makers o Adhering to G.A.A.P Disadvantages o Difficult to use and understand *EXAMPLE* Tom’s House painting business May: Borrow $600 from his parents on May 15.
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This note was uploaded on 04/16/2008 for the course BCOR 2000 taught by Professor Brush during the Fall '07 term at Colorado.

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ACCT 8-27 Cash vs. Accrual Basis - Cash Basis vs Accrual...

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