In the cash basis of accounting, income is recorded when cash (income) is received and expenses are recorded when cash is paid.
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In the accrual basis of accounting, income is recorded when the sale is made and expenses are recorded when they accrue.
Tranaction reports are set to accrual by default
example: firms and business with large inventory |
The cash basis of accounting is a method of accounting in which transactions are recorded only when cash is collected or paid.
Example: A company sells a product in 2005 but collects the cash proceeds from the sale in 2006 would record the sale in 2006 (when they actually got paid) |
The method of accounting in which assets, liabilities, revenues, and expenses are recorded in the same period that the related transactions occur, regardless of whether cash was received or paid by the entity during the period, is referred to as the accrual (or GAAP) basis of accounting. The accrual basis of accounting is based on cash transactis as well as credit transactions.
Example: Under the accrual basis of accounting, a company that buys inventory in 2005 but does not pay for it until 2006 would record the purchase in 2005 (when the transaction occured). |
Pure Cash Basis |
Accrual basis financial statements present financial position and results of operations in accordance with generally accepted accounting principles. Under the accrual basis of accounting, revenues and expenses are recorded when they are earned or incurred, which may or may not coincide with the time cash is actually received or paid.
Few small to medium sized businessneed accrual basis financial statements on a regular basis, except may be creditors. |
Substanially all transactions recognized are cash receipts and disbursements. However, some non-cash transactios are recognized (e.g. depreciation), and some transactions are capitalied and amortized following GAAP requirements.
Example: Capiral expenditures are recorded as fixed assets and depreciated following GAAP guidelines. |
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