Accrual and Cash Basis Accounting

Cash basis mostly is something used by small businesses, it is a simple way to understand the financial statements. You would only use this, if you were not worried about the accuracy of the statements. For example, you would use cash basis, if you just want to understand if there is profit, or on the other hand, a loss in the company’s overall value. Revenues are recorded when cash is received and expenses are recorded when cash is payment. Cash basis accounting is simple and inexpensive to implement and utilize, and it gives an accurate accounting of the company’s cash flow.
    The cash basis method lets the company defer taxable income by delaying billing. This allows that payment, to not be received, at least on the books, in the current year. However, this way is not recommended. It does not meet the generally accepted accounting principles (GAAP). Cash basis accounting does not follow the revenue and matching principles required.   “Since the cash basis technique does not recognize receivables or payables, it is not an accurate method of measuring profit” ("BNV", n.d.).    
    Accrual basis accounting method is when, revenue is “recognized” when revenue is earned, and expenses accrued. Some of the largest companies here in the U.S. and in other foreign nations use the accrual basis type of accounting. Accrual accounting is necessary for small and private companies, to “predict” the future of the companies. Some company’s do not like using the accrual basis; because it tends to be costlier and will show any monies made or lost by them.
    The text tells us that the U.S. Securities and Exchange Commission requires that all publicly traded companies follow GAAP, thus all publicly traded companies publish their financial statements using accrual-basis method (Wiley 5th ed.). This is also true for all companies that handle inventory.
    When managers look through financial statements and reports, there will be ways for you to tell which type of...