Cash vs. accrual: Is there a difference in recognizing transactions?

ACC205: Principles of Accounting I

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Cash vs. accrual: Is there a difference in recognizing transactions?

Cash and accrual based accounting are two ways use to record revenue or expense transactions. However, there is a difference in recognizing cash and accrual accounting transactions. Moreover, in cash basis accounting, a transaction is recognized when the money changes hands. Therefore, cash receipts are treated as revenue and payments are treated as an expense. However, in accrual basis accounting, it records the effect of each transaction as it occurs. Revenues are recorded when they are earned and expenses are recorded when occur. Furthermore, in accrual accounting it does not matter when the money is received for the sale or when the expense was paid. Therefore,

A business that keeps its financial records ("books") on the cash basis (or method) records revenue when received and expenses when paid. Its simple, and the income statements reflect the true cash inflow and outflow of the business. The downside is the financials may not truly reflect the value created or lost, at least not when it's created or lost. Accrual accounting is quite different. It basically ignores when the cash actually goes in and out. Revenue is booked when its earned, and expenses are booked when the liability is incurred. Accrual accounting requires more entries than the cash method. The company that uses accrual will also record actual receipt and payments of cash; they just wont impact revenue, expense and income. (Anonymous, 2011)

In cash accounting, as stated previously, a cash transaction is considered complete when cash changes hands. For instance, if you walk into a store and purchase an