Accrual and Cash Accounting

Accrual and Cash Accounting

Terry Bonner

ACC/290

March 29, 2015

Adrienne Walker, Faculty

Accrual and Cash Accounting

        Accrual and cash accounting offer two different styles of tracking the flow of money in a business. Each serves a purpose and to understand this idea one must first realize how one varies from the other. The difference between accrual and cash accounting is that accrual is a method of financial record-keeping that measures a company’s position which is performance. Accrual accounting basis are matched to expenses when specific transactions occur. Accrual-based accounting can be described as any transaction that changes a company’s financial statement is recorded in the accounting period the transaction was recorded (Kieso, Kimmel & Weygandt). Such transactions are recorded even if the actual exchange of money did not occur at that particular time. Cash accounting is a specific method of accounting used on the balance sheets of businesses. Cash accounting is an individual or business which does not record income until actually receiving the payment (Kieso, Kimmel & Weygant). The cash basis accounting methods records are transactions when cash changes hands. The accounting method provides small business with a simple method of managing financial information. Both cash basis and accrual accounting forms are approved accounting methods for tax purposes. The GAAP requires companies to use the accrual accounting maintaining financial information (Kieso, Kimmel & Weygandt). However, a painter who is acting as accountant on behalf of his/her own company could complete a job on December 26, 2009, but services were not rendered until January 9th, 2014. He or she could report those cash earnings on their 2014 tax report and still be in compliance with generally accepted accounting principles.