Acc 290 Week 1 Individual Assignment
Individual Summary Question One
ACC-290
March 3rd 2014
Individual Summary Question One
It is commonly known that most commercial and general accounting principles use accrual based accounting over cash based accounting. Accrual based accounting is more advanced than cash based accounting so that is why most accountants chose this over the latter.
Cash based accounting is when revenues are recognized when cash is received and when expenses are recognized when cash is paid. Cash based accounting is not in accordance with the general accepted accounting principles (GAAP).
Accrual based accounting is when transactions are recorded at the times in which the events occur. The revenues are recognized when they are earned and not
when the cash is received. Expenses are recognized when occurred and not when they are paid.
The difference between cash based and accrual based is the way in which revenues and expenses are recorded. With cash based accounting these revenues and expense are recorded when the goods are bought or sold. Accrual based accounting uses earned income and occurred expenses even before they are paid.
The cash based accounting method is one of the four basic accounting methods and also the oldest form as well. The cash method accounting is used in farming and personal business with incomes less than 5,000,000 in total. After the tax reform act in 1986 the cash based method could no longer be used in big corporations and trusts.
The accrual based accounting has been around almost as long as the cash based method and it has been widely used in the United States since 1916. For businesses providing services accrual based accounting just makes much more sense. It makes more sense because some of the services provided could take long periods of time. This would be easier to keep track of the income coming in and going out easier because it is inputted when it is earned.
If a company used the cash based method for services that take long periods of time than the company would have to charge the payee up front before their services were even finished. This would make business hard for this company so the accrual based method makes it a lot easier for them.
ACC-290
March 3rd 2014
Individual Summary Question One
It is commonly known that most commercial and general accounting principles use accrual based accounting over cash based accounting. Accrual based accounting is more advanced than cash based accounting so that is why most accountants chose this over the latter.
Cash based accounting is when revenues are recognized when cash is received and when expenses are recognized when cash is paid. Cash based accounting is not in accordance with the general accepted accounting principles (GAAP).
Accrual based accounting is when transactions are recorded at the times in which the events occur. The revenues are recognized when they are earned and not
when the cash is received. Expenses are recognized when occurred and not when they are paid.
The difference between cash based and accrual based is the way in which revenues and expenses are recorded. With cash based accounting these revenues and expense are recorded when the goods are bought or sold. Accrual based accounting uses earned income and occurred expenses even before they are paid.
The cash based accounting method is one of the four basic accounting methods and also the oldest form as well. The cash method accounting is used in farming and personal business with incomes less than 5,000,000 in total. After the tax reform act in 1986 the cash based method could no longer be used in big corporations and trusts.
The accrual based accounting has been around almost as long as the cash based method and it has been widely used in the United States since 1916. For businesses providing services accrual based accounting just makes much more sense. It makes more sense because some of the services provided could take long periods of time. This would be easier to keep track of the income coming in and going out easier because it is inputted when it is earned.
If a company used the cash based method for services that take long periods of time than the company would have to charge the payee up front before their services were even finished. This would make business hard for this company so the accrual based method makes it a lot easier for them.