Accural Basis and Cash Basis Accounting
Accrual Basis and Cash Basis Accounting
Vannario L. McCray
Accounting 290
A simple form of accounting is accrual basis accounting. When a payment is taken in after a sale of goods or services, a deposit may be made. When the time comes, checks are written because funds are available to pay bills, and the expense is recorded as of the check date regardless of when the expense took place.
The main focus is on how much money is in the bank, the secondary focus is on making sure that all the bills are paid. Not much effort is made to match revenues to the time period in which they are earned, or to match expenses to the time period in which they are incurred.
Accrual basis accounting matches revenues to the period of time it is earned and it also matches expenses to the period they happen. It is more complex than cash basis accounting but it provides a lot more information for the business. Accrual basis lets you track receivables with expenses incurred while earning them which gives you a more meaningful financial report.
Cash Basis Accrual Basis
Revenues are recorded as they come in which may be before or after they are earned. Revenues are recorded when they are earned, which may be before they are taken in.
Expenses are taken down when paid. Either before or after they happen. Expenses are recorded when they happen, either before or after they are paid
Financial statements reflect revenues and expenses based on when transactions were entered rather than when revenues were earned or expenses incurred. Financial statements will match up revenues to expenses incurred while earning them. This more accurately shows results of operations.
No receivables At the point of sale a receivable is recorded even though payment was not received
No payables Payables are taken down when payment is not made at time of purchase.
No tracking of partial payments available. Revenues and expenses are recorded in full, even if payments are made over time.
The
Vannario L. McCray
Accounting 290
A simple form of accounting is accrual basis accounting. When a payment is taken in after a sale of goods or services, a deposit may be made. When the time comes, checks are written because funds are available to pay bills, and the expense is recorded as of the check date regardless of when the expense took place.
The main focus is on how much money is in the bank, the secondary focus is on making sure that all the bills are paid. Not much effort is made to match revenues to the time period in which they are earned, or to match expenses to the time period in which they are incurred.
Accrual basis accounting matches revenues to the period of time it is earned and it also matches expenses to the period they happen. It is more complex than cash basis accounting but it provides a lot more information for the business. Accrual basis lets you track receivables with expenses incurred while earning them which gives you a more meaningful financial report.
Cash Basis Accrual Basis
Revenues are recorded as they come in which may be before or after they are earned. Revenues are recorded when they are earned, which may be before they are taken in.
Expenses are taken down when paid. Either before or after they happen. Expenses are recorded when they happen, either before or after they are paid
Financial statements reflect revenues and expenses based on when transactions were entered rather than when revenues were earned or expenses incurred. Financial statements will match up revenues to expenses incurred while earning them. This more accurately shows results of operations.
No receivables At the point of sale a receivable is recorded even though payment was not received
No payables Payables are taken down when payment is not made at time of purchase.
No tracking of partial payments available. Revenues and expenses are recorded in full, even if payments are made over time.
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