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Cash versus Accrual
Term Paper ID:45570
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Essay Subject:
cash, accrual... More...
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1 Pages / 225 Words
1 sources, 1 Citations,
MLA Format
$4.00
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Paper Introduction:
Why do cash flows and revenues recognized differ if they differ under yourcalculations The cash flows differ from the revenues recognized because of theinherent differences in the two ways of recognizing cash inflows cash andaccrual The Generally Accepted Accounting Principles GAAP requires theuse of accrual accounting The accrual method requires that expenses bematches to the revenues they helped produce An accountant using theaccrual basis will record revenue when it is earned Some accountants may have a disparity in their case study because
Text of the Paper:
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Some accountants may have a disparity in their case study because theyused the cash basis of accounting. An accountant using theaccrual basis will record revenue when it is earned. Under the cash basis, revenue is onlyrecognized when cash is received or expenses when the cash is paid. An adjusting journal entry may be needed to address the disparity inrevenues and cash flows. The Generally Accepted Accounting Principles (GAAP) requires theuse of accrual accounting. The cash flows differ from the revenues recognized because of theinherent differences in the two ways of recognizing cash inflows: cash andaccrual. The accrual method requires that expenses bematches to the revenues they helped produce. Since the cash basis fails to give a completefinancial picture in terms of current or ongoing business transactions, theaccrual is chosen as the standard by GAAP. Thiswill give a "live" financial picture of the company and a "real time"indication of the firm's performance. Why do cash flows and revenues recognized differ, if they differ under yourcalculations?
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