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Accural Method

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Accrual Method

Accrual Method
There are many differences between Accrual Based Accounting and Cash Based Accounting. Accrual accounting shows the flow of business income and debts. It will show the cash reserves and will show good or bad cash flows. For example the income ledger with thousands of dollars, however the account is actually empty due to the customers have not paid the bill yet.
The cash accounting is a more accurate picture of the actual cash in your business. It may offer information as a longer-term profit. When using a cash method the ledgers will show one month of different profits, however the actual sales have slowed down. A lot of credits customers have paid in monthly bills.
In the accrual accounting revenue is not cash. In many times when using the accrual accounting method, you may end up seeing more revenue than actual cash in the ledger. This is because for example customers place orders, but have not paid the bills yet, meaning you are seeing the future revenue, but no cash in the account yet.
The importance of a cash flow statement is very important because it tells you weather the organization is actually making any profits. At the end of the month a monthly statement is created to tell the organization what money is actually coming in and how much is actually going out. This will give you accurate account information if you are below the line or above the line.

Reference
Study Academy. (2015). Retrieved from

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