Chapter_3_The_Accounting_Information_System_Appendix_3A_Course_Notes

Chapter_3_The_Accounting_Information_System_Appendix_3A_Course_Notes

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

View Full Document Right Arrow Icon
Appendix 3A- Cash-Basis Accounting Versus Accrual-Basis Accounting Accrual Basis of Accounting: Most companies use accrual-basis accounting 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 of Accounting: Under the strict cash basis, companies record revenue only when they receive cash and record expenses only when they disperse cash. Theoretical Weaknesses of Cash Basis: Today’s economy is considerably more lubricated by credit than by cash. The accrual basis, not the cash basis, recognizes all aspects of the credit phenomenon. Investors, creditors, and other decision makers seek timely information about an enterprise’s future cash flows. Illustration 1: Quality Contractor signs an agreement to construct a garage for $22,000. In January, Quality begins construction, incurs costs of $18,000 on credit, and by the end of January delivers a finished garage to the buyer. In February, Quality collects $22,000 cash from the
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.

This note was uploaded on 02/12/2012 for the course ISDS 3115 taught by Professor Woosley during the Spring '08 term at LSU.

Page1 / 2

Chapter_3_The_Accounting_Information_System_Appendix_3A_Course_Notes

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