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Accrual Financing

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Accrual Financing
Accounting is an important aspect of every business or organization in the world today. Without proper accounting methods and principles it would be almost impossible for any entity to become profitable while keeping track of its finances.
Accrual basis accounting accounts for revenue when it is earned and records it in the period in which the transaction occurred. Cash basis accounting only accounts for revenue when cash is received for services provided or goods delivered, and it records those transactions during the period cash was received (Wiley, 2012).
Accrual basis accounting is usually prescribed and generally more accepted than cash basis accounting on a commercial setting. Accrual accounting gives you a more accurate view of financial transactions within an organization as it mandates that businesses record and account for revenue once it is earned rather than when payment is received. By conducting accrual accounting, businesses allows investors and creditors the ability to better understand the stability and profitability of the organization. The more sound the accounting practices are within and entity, the more accurate the financial reporting will be.
Cash basis accounting is not in accordance with generally accepted accounting principles (GAAP), (Wiley, 2012). Cash basis accounting, unlike accrual accounting, does not present a clear understanding of the financial transactions of an organization. For example, if I was the owner of a car dealership and sold 40 vehicles in December of 2012 but did not receive payment until January of 2013, I may show a deficit in budget for 2012 under the principles of cash basis accounting. If I were to use accrual accounting instead, I would record and recognize the revenue in December of 2012 which is when I earned the right to that revenue, versus waiting until 2013 to record...

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