LaDonna Williams
Axia College, University Of Phoenix
HCA 270

The Accrual basis of accounting is mostly used by profit-oriented organization, accrual basis is a method of accounting, which provides information that accounts are prepared with the financial transactions that are accrued. It says that under this system revenues and expenses should be recognized and reported for the accounting period in which their economic substance is realized not when they got them or paid for in cash. Revenues are realized when earned whether or not they are received in cash. Incurred expenses are matched, to related revenues. It doesn’t matter if they or not such expenses are actually paid in cash. This means that credit sales from 2010 will become part of the final accounts of 2010 even if they don’t get the cash in late February 2011. We all know that utility bills are billed a month after the service has been used. You usually pay your gas bill for November in the month of December. So what will happen is if a business has a year end of December you will most likely pay December’s bill in January. Although it is still unpaid it is a part of 2010’s statement as an accrual. This method of accounting gives a better picture of what we are earning by including both cash and non-cash items when it comes to calculating profit. When calculating profit the accrual does not only take the actual eleven months electricity bill it also includes the one month bill that hasn’t been paid, but the business has used that electricity. The bill is still a valid business expense for the year and needs to be recorded as that year’s expense as such. You will have to pay the bill sooner or later, but it is in the period which we used that electricity. This introduces us to the concept of depreciation. It is a non cash expense but it is necessary to how much we have used of our assets in order to