Week 2 The Accounting Information System and Accrual Accounting Concepts Discussion Accrual Accounting and Adjusting Entries graded In this area we will talk about the difference between cash basis and accrual basis accounting the importance of revenue recognition and matching principles and the role of adjusting and closing entries in the preparation of the income statement statement of retained earnings and balance sheet How is cash basis accounting different from accrual basis accounting Responses Responses are listed below in the following order response author and the date and time the response is posted Response Date Time Author W el co m e to w ee k 2 th re a de d di sc us si o ns Professor Wilson 3 6 2013 11 50 15 AM Class Prof Wilson In this area we will talk about the difference between cash basis and accrual basis accounting the importance of revenue recognition and matching principles and the role of adjusting and closing entries in the preparation of the income statement statement of retained earnings and balance sheet How is cash basis accounting different from accrual basis accounting Geri Waldbillig 3 10 2013 2 41 30 PM R E W el c o m e to w ee k 2 th re a d e d di sc u ss io n s Cash basis accounting and accrual basis accounting are also known as cash method and accrual method accounting In regard to how they differ The Cash method accounting counts the transaction when the cash or check transpires not when the goods or services are received The Accrual method accounting counts the transaction when it takes place when you receive the goods or service not when the cash transpires For example I purchased some exercise equipment for my new business I received the equipment on March 10 2013 but I did not pay for it until June 10 2013 Using the Cash method I would not make an expense entry until I made the payment June 10 2013 Using the Accrual method I would make an expense entry on March 10 2013 Fishman Stephen J D Cash vs Accrual Accounting Nolo com Retrieved March 10 2013 from http www nolo com legal encyclopedia cash vs accrual accounting 29513 html David Neville RE Welcome to week 2 threaded discussions Cash basis accounting is the simplest form of accounting and what we use every day at our banks Accrual basis is more complex but gives more detailed information about the financial transactions Here is a chart explaining the difference I obtained from the internet 3 11 2013 9 58 18 AM Cash basis Revenues are recorded when they are received which may be before or after they are earned Expenses are recorded when they are paid which may be before or after they are incurred Financial statements reflect revenues and expenses based on when transactions were entered rather than when revenues were earned or expenses incurred No receivables are recorded No payables are recorded Accrual basis Revenues are recorded when they are earned which may be before or after they are received Expenses are recorded when they are incurred which may be before or after they are paid Financial statements match revenues to the expenses incurred in earning them and more accurately reflect the results of operations A receivable is recorded when payment is not received at the point of sale Payables are recorded when payment is not made at the time of purchase No method of tracking partial payments Revenues and expenses are is available recorded in full even though partial payments may be made over extended time periods Understanding accrual basis accounting cash Office Microsoft and http office microsoft com en us support understanding cash and accrual basis accounting HA010164612 aspx 37k R E W el c o m e to w ee k 2 th re a d e d di sc u ss io n s Jessica Dallek 3 11 2013 2 22 19 PM Cash basis accounting is when you do not record a transaction until cash is received or paid out for a particular event Accrual basis accounting records a transaction based on when the event takes place even if you have not received or paid out cash For example working for the local government I use accrual based accounting I typically write purchase orders for the majority of the goods supplies equipment that we buy Since we have a standard of net 30 days from the time the item arrives until it is paid the same event or transaction could take place over the course of two months However I record the transaction on the day that I order the supplies and make another recording of the payment for that transaction on the day that I send payment This concept could be linked along with the expanded accounting equation process which we are discussing in the other discussion thread for this week and then of course the adjusted enteries concepts as learned in Chapter 4 It s interesting to see all of this come together and how one concept relates to the next RE Welcome to week 2 threaded discussions How is cash basis accounting different from accrual basis accounting Elizabeth Smith 3 11 2013 2 44 07 PM The simplest way of comparing by a table Cash basis accounting Accrual basis accounting Use by small companies Not conformed to the provision of GAAP Use large companies to report to their investors Conformed to the provisions of GAAP There s a time gap between recording the transaction The transaction is recorded based on accrual principal http www businessdictionary com definition accrual basis accounting html http www businessdictionary com definition accrual basis accounting html Professor Wilson 3 11 2013 3 26 34 PM R E W el c o m e t o w e e k 2 t h Elizabeth et al and rest of the class Thanks for the postings and discussion on cash basis and accrual basis accounting Good summary on the different basis To continue the discussion please consider the following Between the cash basis and accrual basis which method provides a better picture of the overall profitability of a company Why do you believe that method provides better picture Prof Wilson Geri Waldbillig 3 11 2013 4 21 02 PM r e a d e d d is c u ss io n s R E W el c o m e t o w e e k 2 t h r e a d e d d is c u ss io n s R E W el c o m e t The accrual basis gives a more accurate picture of profit or loss because it includes all revenues and expenses paid or unpaid The cash basis only records cash transactions Snyder Stan Understanding cash and accrual basis accounting Microsoft com Retrieved March 11 2012 from http office microsoft com en us accounting help understan ding cash and accrual basis accounting HA010164612 aspx RE Welcome to week 2 threaded
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