Accrual Method of Accounting

Accrual Method of Accounting - income took place. You would...

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Accrual Method of Accounting The accrual method of accounting is an accounting method used by businesses that require income to be reported as it is earned but may not be claimed until the performance has taken place. Under the accrual method, you record business income when a sale occurs. You record an expense when you receive goods or services, even though you may not pay for them until later. There are many different situations in which the accrual method of accounting is used. For example, you sold a big-screen television for $800 in December of 2001. You sent out a bill in January of 2002 and the customer paid you later that year. However, when he got the bill, your customer pointed out that your competitor, Store X, was selling the same model for $50 less, so you adjusted your price by $50 to avoid losing the sale. Under the accrual method, you would recognize $800 of income in 2001, because that is when all events establishing your right to the
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Unformatted text preview: income took place. You would reduce your 2002 income by $50 to reflect the lower payment you actually received. This is just one of many examples in which the accrual method of accounting is used in the everyday process of the business world. The accrual method gives you a very accurate picture of your financial situation. The reason that the accrual method is so accurate is because you record income on the books when it is truly earned, and you record expenses when they are incurred. Income earned in one period is accurately matched against the expenses that correspond to that period, so you get a better picture of your net profits for each period. Reference below Gerald P Weinstein, William J Cenker. (2008, August). Tax Accounting Method and Entity Choice. Taxes, 86(8), 23-30+. Retrieved March 8, 2009, from Accounting & Tax Periodicals database. (Document ID: 1521830841)....
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Accrual Method of Accounting - income took place. You would...

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