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ACCT 327 Chp 3 Cash vs Accrual

ACCT 327 Chp 3 Cash vs Accrual - (2 the expense recognition...

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ACCT 327 Chapter 3  CASH BASIS vs. ACCRUAL BASIS Accrual-Basis Accounting:  o Most companies use accrual-basis accounting.  They recognize revenue when it  is earned and expenses in the period  incurred, without regard to the time of  receipt or payment of cash Cash-Basis Accounting:  o Some small enterprises and the average individual taxpayer use a strict or  modified cash-basis approach. o Under the strict cash basis, companies record revenue only when they receive  cash, and they record expenses only when they disperse cash o The cash basis ignores two principles: (1) the revenue recognition principle and 
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Unformatted text preview: (2) the expense recognition principle o Cash basis accounting is not in conformity with GAAP • Total net income will be the same under both cash-basis and accrual-basis in the end. The difference is in the timing of revenues and expenses. • Weaknesses of Cash-Basis Accounting: o The cash basis does not recognize the aspects of the credit phenomenon o Accrual basis accounting aids in predicting future cash flows by reporting transactions and other events with cash consequences at the time the transactions and events occur, rather than when the cash is received or paid....
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