Accrual versus cash accounting: Adjusting Accounts and Preparing Financial Statements

Accrual versus cash accounting
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Accrual versus cash accounting
Cash accounting involves recording of all transactions when cash actually changes hands. In other words, the transactions are recorded when cash payment is made by a customer or the company pays for various purchases or services (Harvard Business School., & Society for Human Resource Management, 2005). For instance, if a seller buys a product in April for sell and pays $800 cash, and the product is sold in May, when the seller closes books at the end of April, he/she should record an expense of $800 without a revenue to offset it. Therefore, in April the seller will have made a loss of $800. When the product is sold in May for $900, he/she will have a profit of $900 in May. Therefore, in April the seller will record a loss of $800, and in May a profit of $900. However, over the two...