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ACCURAL_BASED_ACCOUNTING_AND_CASH_BASED_ACCOUNTING

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Introduction

ACCRUAL BASED ACCOUNTING AND CASH BASED ACCOUNTING In this essay, I am going to write about two different types of accounting methods such as accrual and cash based accountings. Firstly, I will give a single definition for each and then I will explain the areas where they have been used, the people who have used them and, finally, the purpose of using them. Accrual based accounting is all about shipping or receiving the goods by the business company. But the cash based accounting is more like a bookkeeping which is recording the incoming and outgoing cash. Indeed, accrual based accounting does not really care about when the money is being received. Accruals concept is looking at the point where the revenue is recorded when it is earned without looking at the actual payment time. As an example to the according index above, if you use the cash based accounting for your telephone bills, when you have small or no income and have to pay lots of telephone bills, then if you record your accounting you don't earn and so you have lost. ...read more.

Middle

This is because the cash based accounting is easier to use and much cheaper so it would be waste to use accrual if the business is fine with cash based accounting. From another point of view, accrual accounting can be seen as the main action for the criteria for the recognition of the revenue and expense which has got two key conventions: the realization and the matching process. These matching principles are fundamental to the determination and identification of the point in time where the profits are deemed to occur. They do not have any natural law concepts or anything. They are both based on common sense and accepted as it is in accountancy. A really basic example to this belief of conduct is 'stock' where the goods are not being sold when they have been bought and there is normally no certain time to do that. Stock has been incurred in the expectation of future revenue. Any earning is been recorded regardless of payment time and the expense is recognized when the payment is actually done by the matching principle. ...read more.

Conclusion

Also with accrual there is less chance of making mistakes because of its features. Cash based accounting has been used by government entities very often although they deal with trillions of money. So, we can question why governments' still uses cash based then. Well, not everything in the world applies to common sense because if it was applying then there would not be anything which is going wrong. In a few words, then, it is certain that governments' are trying to switch from cash based to accrual based. (Money instructor ) In my opinion, they are both good ways of accounting methods depending on which business you want to use it for. Recording to my researches and discussions most of the businesses would have better view of the business with accrued based accounting in most of the situations. It is a lot easier to improve the business with estimates and predictions without the limitations that cash based accounting gives. We know estimates are not always correct but it is always better to choose the one which has more alternatives and, as above, accrual has more in most of the conditions. ...read more.

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