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Accounting: Accrual vs Cash

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Accounting: Accrual versus Cash
Zachary Ingwaldson
ACC 290
October 14, 2012
Tamyra Ford

Accrual vs. Cash

Accounting departments are responsible for the documentation and upkeep of transactions that pertain to business needs, development, and sustainability. Businesses such as non-profit, small, and large corporations may use different platforms to perform the transaction accountability necessary. Most notably, many profitable businesses use either the accrual bases or cash bases with a preference for the accrual. The following will describe the two recording statements mentioned and the differences between them. Examples of company preference regarding the accrual method will also be examined.
Cash Basis Accounting The cash basis of accounting is generally used for companies that document transactions when cash is received for a good or service already performed. Likewise, a transaction is not documented as a liability or credit until the bill or payable expense is complete. However, according to the book Financial Accounting: Tools for Decision Making, the cash basis of accounting is generally “prohibited under generally accepted accounting principles because it does not record revenue when earned” (Kimmel, Weygandt, & Kieso, 2009, p. 164). This practice does not reflect expenses incurred which is also a violation of the matching principle. An example of cash basis accounting is completing a job in the latter part of a particular year and not receiving payment until the following year. The expenses would be documented for the prior year because supplies and labor were paid for. Payment for the job was not accepted until the following year; therefore, it could not be recorded until cash was on hand.
Accrual Basis Accounting Accrual basis accounting is best described as the

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