Question

Describe how you can apply the concepts of accrual and cash accounting to your personal life or professional career.

Share with the group any aspects of these concepts that you find confusing or need clarified.

Pick an example transaction and share with the group how it would be accounted for under both the accrual method and the cash methods of accounting.

Answer 1

ACCRUAL ACCOUNTING

In accrual method revenues are recognized when they are earned

In accrusl method raceivables are recrecognised as a asset in the books when they are earned not on their realization

Expenses are recognized after they incurred not on actual payment

Income is based on revenue earned and actual expense incurred during the period

CASH ACCOUNTING

receivables are recognized as an asset only they realized in cash

And expenses are recognized on their actual payment

Their fore net income is based on cash received and cash payments

However this method is not following matching concept due to revenue is realised in books not on their earned but on their receipt payments are recorded in books only on actual payment

Example - if an individual salary employee follows cash basis he should recognize on recept basis that is salary actually realised

In case be follows accural accounting he recognizes on their accural that is if he goes to office for 10 days he recognize salary for 10 days that is actual days worked not on their actual payment received