ACCURAL_BASED_ACCOUNTING_AND_CASH_BASED_ACCOUNTING

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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. Instead, if you had been using the accrual based accounting for the same purposes, telephone bills again, when you don’t pay your bills and have some earnings it looks like you have good income because you don’t pay your bills, so you have earned. It does not really show what actually is occurring in the business so there is a majority of distortions. As we said, accrual accounting receivables and payables are recognized when a sale is agreed to, even though no cash has been received or paid out as yet. So, it only looks at the match between the income and the expense and, at the same time, the expense is the result of a stronger match of revenue in the whole transaction. (All businesses)

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They have the same purposes of using them in business areas; to record the events going on in the business such as revenues, expenses, cash flows, sales and etc... They have been used by office holders, government employees, directors, shareholders, managers; in a word, anywhere cash flows taking places. Of course they have differences between them. Accrual based accounting has more alternatives and can be used in many businesses because it gives more accurate calculations and a better view of the business but it is better to use in big businesses. This is because the cash based accounting is easier ...

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