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Accounting, Finance, SPSS
English (U.S.)
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Acc 290: Accrual Vs Cash basis Accounting Methods (Essay Sample)

Commercial accounting and generally accepted accounting principles, generally prescribe the accrual basis of accounting over the cash basis. Describe both bases of accounting and explain the differences. source..

Accrual Vs Cash basis Accounting Methods
Accrual Vs Cash basis Accounting Methods
According to Anderson et al (2013), cash method of accounting is the process where income is calculated through the actual cash, which is generated from taxpayers in relation to the expenses realized during the payment process. Therefore, this process is done after an organization has received cash payment from their clients or payment from company purchases. On the other hand, accrual accounting method is calculated from the expenditures of the organization even before payment is made by organization clients as explained by Cohen (2013).Based on the two methods of accounting, there exist various differences that control their operations. For instance, in the process of calculating cash basis accounting, revenues are calculated through income statement based on the time the organization cash is got from clients. On the other hand, revenue from accrual basis of accounting is derived from income statement from the money earned. Therefore, the calculation of organization revenues are done before the organization receives money from the customers as explained by (Cohen, 2013).
Another difference that exists between accrual and cash accounting method is that under cash basis accounting, expenses are reported based on income statement. Therefore, this is done by the organization only after cash payment has been made. However, based on accrual basis of accounting, expenses are generated from the income statement during the period in which they occur. According to Cohen (2013), an organization performs accrual basis of accounting in a different time from the time payment is finalized. Consequently, accrual basis of accounting allows organizations to perform transaction even in the absence of cash exchange as found by (Anderson, 2013). Hence, it is important for organizations to develop better understanding of the above methods...
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