Cash Basis vs. Accrual Basis The cash basis of accounting is more likely to be used by service businesses than by retail or manufacturing businesses. Service businesses usually do not need equipment and can sell a service they perform with nothing more than their own hands and minds. Think of people who are lawyers, writers, public relations and advertising personnel, and accountants.. (Edmonds, McNair, Milam, and Olds, Fundamental Financial Accounting Concepts,

Accounting In just about any part of the world, accrual accounting is preferred by government over cash accounting, for several good reasons. To understand these reasons, the first step is to understand what the difference is between accrual accounting and cash accounting. Cash accounting is a standard form of accounting for very small businesses and for households, where the entire basis of accounting is the cash flows in and out. Under

Accounting The accrual basis of accounting recognizes income when it is earned and expenditures when they are incurred. This basis is used for financial statements for a couple of reasons. The first is that it is transparent, and the second is that it is consistent. For publicly-traded companies in particular, accrual accounting allows stakeholders both internal and external to benefit from the consistent production and presentation of statements, and the

The major difference between cash and accrual basis accounting lies in when the expenses and revenues are recorded or recognized. The cash basis method accounts for revenues when money is actually received regardless of when the invoice was issued. Expenses on the cash basis accounting method are recorded when they are paid out and not when they were invoiced. The cash basis method is mostly used for personal finances and

Accounting Concepts Revenue Recognition: Its Relevance and Significance In the words of Kimmel, Weygandt and Kieso (2008), "the revenue recognition principle requires that companies recognize revenue in the accounting period in which it is earned." Unlike is the case in the cash basis of accounting, revenue under the accrual accounting basis is recognized on the sale of a certain commodity or the performance of a given service. Under the cash basis

Accounting GAPP, or "generally accepted accounting principles," has very specific meanings for the accounting profession. Like many other fields, these are best practice principles, and they both govern the standards of accountants and guide in licensing. They were designed so that there was a more even playing field, level of transparency, and trust in the accounting industry (see, for example, www.fasab.gov/accepted.html). While not always absolutes, these types of guidelines are a