Accrual and Cash Accounting
10/18/2015
XACC/290

Accrual and cash accounting are both beneficial to businesses; however, there are different reasons to you each one. Cash accounting is mostly used by small businesses and for personal finances. Cash accounting keeps track of money only when it is received and paid out. It does not recognize any accrued revenues or expenses because cash was not paid during a period. Accrual accounting keeps track of money when it is earned even if cash has been received yet; it also keeps track of expenses and services when they are incurred even if no money has been paid. Companies are allowed to use cash based accounting for internal purposes and some small businesses are allowed to use cash based accounting when filing for taxes. Otherwise businesses are not allowed to use the cash based accounting because it goes against the GAAP because it doesn’t reflect the company performance or financial status. It also violates the matching principle and time period principle. The Accrual method is preferred because it gives a better picture of how the company is doing financially to give the company a better picture of what they need to do to improve.

References
Accounting Coach. (2004-2015). Retrieved from http://www.accountingcoach.com/blog/cash-basis-accrual-basis-of-accounting
Cash Basis Accounting. (2015). Retrieved from http://www.myaccountingcourse.com/accounting-dictionary/cash-basis-accounting
University of Phoenix. (2015). Financial Accounting. Retrieved from University of Phoenix, XACC/290