Accrual Basis

Accrual Basis vs. Cash Basis Accounting

    The difference between accrual basis vs. cash basis accounting is that “ accrual basis

shows that most larger companies uses this to record transactions in the periods in which

events occur, making it to determine the net income when companies recognize revenues

earned, rather than receiving cash and expenses when incurred than paid” (Weygandt,

2008). With the “cash basis this is used for smaller companies when they record revenue

after they receive the cash and pay out cash, that can be tremendously misleading for the

financial statements” (Weygandt, 2008).

    The “accrual basis is accepted by the GAAP because it show how well the larger

companies financial status is doing, to where the cash basis is not accepted by the

GAAP, because the revenue is not being recorded in which the cash it not being

received” (Weygandt, 2008).

    The next reason is to “why the politicians prefer the cash basis over the accrual

basis is that the politicians like a more consistent rate than one that will fluctuate

all the time, as it works well within the government to be easy to calculate value

for tax purposes” (Weygandt, 2008) The “accrual basis will ask for a higher tax

rate from the government in larger companies, so this make the politicians feel

safe with wanting to use the cash basis over the accrual basis” (Weygandt, 2008).

Reference: Weygandt, Jerry J., Kimmel, Paul D., & Kieso, Donald E. (2008). “Financial

    Accounting”   (6th ed.). Hoboken, NJ: Wiley. Retrieved October 21, 2009 from ebook

  of University of Phoenix.