Lesson 3 essay - Write a 500-1,000-word essay describing...

This preview shows page 1 - 2 out of 2 pages.

Write a 500-1,000-word essay describing the difference between cash-basis and accrual-basis accounting, and explain which method is consistent with GAAP In every business, whether it is a large corporation or a small Mom and Pop shop, transactions must be recorded so that all of the financial reports can be done correctly as well as closing out the accounting period. There are two methods that are used; cash basis accounting and accrual basis accounting. Both of these methods end with the same results, but they are very different in a few key areas. Although the cash basis accounting method is not allowed under GAAP (Generally Accepted Accounting Principles), small businesses commonly use this method because of its ease of use and it keeps a good record of the businesses cash flow. Cash basis accounting is defined in the textbook as the “accounting method that records revenue only when cash is received and expenses only when cash is paid”.

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture