Accrual Versus Cash Basis of Accounting

Accrual Versus Cash Basis of Accounting - Accrual Versus...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Accrual Versus Cash Basis of Accounting Accrual-basis accounting means that transactions that change a company's financial statements are recorded in the periods in which the events occur , even if cash was not exchanged. For example, using the accrual basis means that companies recognize revenues when earned (the revenue recognition principle), even if cash was not received. Likewise, under the accrual basis, companies recognize expenses when incurred (the matching principle), even if cash was not paid. International Note Although different accounting standards are often used by companies in other countries, the accrual basis of accounting is central to all of these standards. An alternative to the accrual basis is the cash basis. Under cash-basis accounting , companies record revenue only when cash is received. They record expense only when cash is paid. The cash basis of accounting is prohibited under generally accepted accounting principles. Why? Because it does not record revenue when earned, thus violating the revenue recognition
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 2

Accrual Versus Cash Basis of Accounting - Accrual Versus...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online