With a cash basis, you track your income and expenses at the time when the cash actually enters or exits your possession. This is the most intuitive method for non-accounting people, but it will not always give you an accurate picture of your ongoing operations due to irregular timing of cash flows.
With an accrual basis, you track your income when it is earned (when you do the work), and your expenses when they are incurred (when you use the product/service you are paying for). This method is more useful for determining the actual profitability regardless of unrelated issues like delays in collections or payments.
Cash basis - monitors and values the cash that comes in vs. the cash that goes out. Revenue and expenses that have been incurred, but are unpaid, do not show up. For example, if the company issues an invoice to a customer today, it doesn't show up on the cash basis.
Accrual basis - matches earned revenues and incurred expenses regardless of when payment is made. For example, if the company sends out an invoice to a customer today, then the company recognizes the income equivalent to the amount of the invoice.
for the cash basis you recognize the income or expense when you either pay or receive the money. For accrual basis you recognize income either when the expense has incurred or you have earned to the income. For example, you have used utilities for the month but still have not received the bill for it. You would report on your financial statements that expense even though you have no received the bill. You would estimate the amount based on prior years. Also, sometimes you may perform a service but not get paid until months later. You would recognize that income as soon as you earn it, even though you have not physically received it.
THE MAIN DIFFERENCE BETWEEN THE TWO TYPE OF ACCOUNTING IS THE FOLLWOING: BASICALLY ACCRUALS ARE WHEN YOU ANTICIPATE FUTURE CASH FLOWS BY RECOGNIZING ASSETS OR LIABILITIES AND THE RELATED LIABILITIES, ASSETS, REVENUES, EXPENSES, GAINS OR LOSSES. SALES OR PUARCHESES ON ACCOUNT, INTEREST, AND TAXES ARE COMMON ACCRUALS. BASICALLY ACCRUAL ACCOUNTING RECORDS THE FINANCIAL EFFECTS OF TRANSACTIONS AN DO THEIR EVENTS AND CIRCUMSTANCE WHEN THEY OCCUR RATHER THAN WHEN THEIR DIRECT CASH CONSEQUECES ARE FELT. I WOULD LOOK ONLINE FOR MORE DIRECTION AND HOPEFULLY YOU AREN'T AN ACCOUNTANT AS YOU WOULD BE IN TROUBLE AS THESE ARE VERY BASIC QUESTIONS. HOPE THIS HELPS. TAKE A COLLEGE ACCOUNTING COURSE AND YOU WILL LEARN THIS YOUR FIRST OR SECOND WEEK OF CLASS.
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With a cash basis, you track your income and expenses at the time when the cash actually enters or exits your possession. This is the most intuitive method for non-accounting people, but it will not always give you an accurate picture of your ongoing operations due to irregular timing of cash flows.
With an accrual basis, you track your income when it is earned (when you do the work), and your expenses when they are incurred (when you use the product/service you are paying for). This method is more useful for determining the actual profitability regardless of unrelated issues like delays in collections or payments.
Types Of Accounting
Cash basis - monitors and values the cash that comes in vs. the cash that goes out. Revenue and expenses that have been incurred, but are unpaid, do not show up. For example, if the company issues an invoice to a customer today, it doesn't show up on the cash basis.
Accrual basis - matches earned revenues and incurred expenses regardless of when payment is made. For example, if the company sends out an invoice to a customer today, then the company recognizes the income equivalent to the amount of the invoice.
for the cash basis you recognize the income or expense when you either pay or receive the money. For accrual basis you recognize income either when the expense has incurred or you have earned to the income. For example, you have used utilities for the month but still have not received the bill for it. You would report on your financial statements that expense even though you have no received the bill. You would estimate the amount based on prior years. Also, sometimes you may perform a service but not get paid until months later. You would recognize that income as soon as you earn it, even though you have not physically received it.
THE MAIN DIFFERENCE BETWEEN THE TWO TYPE OF ACCOUNTING IS THE FOLLWOING: BASICALLY ACCRUALS ARE WHEN YOU ANTICIPATE FUTURE CASH FLOWS BY RECOGNIZING ASSETS OR LIABILITIES AND THE RELATED LIABILITIES, ASSETS, REVENUES, EXPENSES, GAINS OR LOSSES. SALES OR PUARCHESES ON ACCOUNT, INTEREST, AND TAXES ARE COMMON ACCRUALS. BASICALLY ACCRUAL ACCOUNTING RECORDS THE FINANCIAL EFFECTS OF TRANSACTIONS AN DO THEIR EVENTS AND CIRCUMSTANCE WHEN THEY OCCUR RATHER THAN WHEN THEIR DIRECT CASH CONSEQUECES ARE FELT. I WOULD LOOK ONLINE FOR MORE DIRECTION AND HOPEFULLY YOU AREN'T AN ACCOUNTANT AS YOU WOULD BE IN TROUBLE AS THESE ARE VERY BASIC QUESTIONS. HOPE THIS HELPS. TAKE A COLLEGE ACCOUNTING COURSE AND YOU WILL LEARN THIS YOUR FIRST OR SECOND WEEK OF CLASS.