Difference Between Accrual Basis and Cash Basis Accounting

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The Difference between the Cash Basis and Accrual Basis Accounting When I think of cash-basis accounting I think of “counting money” and accrual basis accounting I think maybe “accrued expenses”. Both of these thoughts may be right in some aspect however there is certainly more to accounting than these mere simple thoughts. “Cash Basis” is counting what you actually have and “Accrual Basis” is counting what you are expecting to receive. So simply cash basis accounting only counts what real, hard cash comes in and out and accrual basis accounting debt/payments you incurred. So let’s compare these two methods and give the advantages and disadvantages of both. In everyday life we all incur bills but most people would probably be better off using cash basis accounting. Larger companies of course would use accrual basis accounting. I write checks when funds are available to pay bills. Revenue is recorded as the date a deposit is made to my account whether by me or my employer. Now should a business operate on cash-basis account? Sure they should, if it is a business that does not sell on credit, and pays bills as they are incurred. This method is ideal for small businesses just starting out making less that $5 million a year. Some examples of small start up businesses are a proprietorship or a partnership business. The cash basis method may also be a good idea with an LLC or Limited Liability Company. Although the cash method is more common with small businesses and household finances, the accrual method or accrual basis accounting is commonly used by larger businesses or corporations. This method operates on counting transactions as the service is performed. The problem with cash basis is that it has nothing to do with when an expense occurred, which does not measure intent but instead measures actual cash. Large corporations incur expenses

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