Individual summar Week 3 Essay

Submitted By bmarsh1687
Words: 398
Pages: 2

Accrual-basis accounting is recording transactions as the service occurs, even if cash is not received yet (Kimmel, 2009). It makes sense that most companies would choose this way to me as I feel this is the best way to keep track of money that you are going to receive and keep things more up to date. The cash basis accounting is not recorded until the transaction until the cash is received (Kimmel, 2009). This to me would get really confusing if you are awaiting payment for a job already done. If you forget to add it to your financial statements or remember what the incoming cash is for you may get turned around. The main difference between the two to me is the fact that one is recorded with out the cash being paid and the other is not recorded until the cash is actually in hand. I would also like to know in my reports that I am awaiting that cash so that I can account for it in future months. Another reason is that when looking at the numbers laid out the numbers for the cash basis accounting can look misleading for the company. The reason that cash basis is prohibited under generally accepted accounting principles, is that it doesn’t record revenue when it is earned, that violates the revenue recognition principle. Similarly it doesn’t record the expenses when they are incurred which in turn would violate the matching principle. In the end when comparing the differences of the two accounting types it’s easy to see why accrual basis accounting is the