What is accrual accounting? Why do generally accepted accounting principles require accrual accounting? What is the difference between accrual and cash accounting? When might an accountant use cash basis accounting without violating generally accepted accounting principles?
Accrual accounting is the reporting of revenues and expenses in the period of time that they occur, even if payment was not received or paid. Generally accepted accounting principles state that all revenues and expenses need to be reported during the time period that they occur. The cash-basis of accounting is the recording of revenue and expenses when payment is received and paid-out. This form of accounting violates the generally accepted accounting principles because it goes against the revenue recognition and the expense recognition principles. The cash
What is the revenue recognition principle? What is the expense recognition principle? Why are they important to financial reporting?
In order for organizations to provide reliable, relevant, and transparent financial information to owners, managers, investors, lenders, and the IRS they must use accrual based financial accounting systems. The revenue recognition principle necessitate that organizations recognize their revenue during the accounting time period that it is earned, not necessarily received…