In: Accounting
discuss Cash-Basis Accounting and Accrual-Basis Accounting.
plz short answer and no pic or handwriting
Thanx
Under the cash basis of accounting…
Revenues are reported on the income statement in the period in
which the cash is received from customers.
Expenses are reported on the income statement when the cash is paid
out.
Under the accrual basis of accounting…
Revenues are reported on the income statement when they are
earned—which often occurs before the cash is received from the
customers.
Expenses are reported on the income statement in the period when
they occur or when they expire—which is often in a period different
from when the payment is made.
The accrual basis of accounting provides a better picture of a
company’s profits during an accounting period. The reason is that
the income statement prepared under the accrual basis will report
all of the revenues actually earned during the period and all of
the expenses incurred in order to earn the revenues.
The accrual basis of accounting also provides a better picture of a
company’s financial position at a moment or point in time. The
reason is that all assets that were earned are reported and all
liabilities that were incurred will be reported.
The accrual basis of accounting is required because of the matching
principle.