University of Phoenix
March 28, 2013
Commercial accounting and generally accepted accounting principles, generally describe the accrual basis of accounting over the cash basis. The differences in accrual and cash accounting can become confusing. The ability to differentiate between the two is important in the accounting world.
Accrual accounting is defined as an accounting method which, measures the performance and position of a company. The accrual method recognizes economic events regardless of when cash transactions occur. The economic events are recognized by matching expenses to revenues. Matching revenues and expenses is known as the matching principle. Recording of transactions occurs at the time in which, the transaction occurs rather than when payment is received or made. The accrual method allows the current cash flows to be combined with future expected cash flows to give a more accurate picture of a company's current financial condition. Accrual accounting is in accordance with the GAAP principles. This accounting method is harder to understand and learn but is a better picture of the organizations worth at any certain point and time.
Cash basis accounting is defined as a method of accounting where transactions are recorded when cash payments are made or received. Cash basis accounting is not in accordance with GAAP principles and is not a good management tool because cash accounting leaves gaps in the purchasing of products or sales of product, and when the cash transfers hand. Cash accounting is easier than accrual accounting and is suitable for small