Accrual_Basis

Accrual Basis vs. Cash Basis Accounting The difference between accrual basis vs. cash basis accounting is that “ accrual basis shows that most larger companies uses this to record transactions in the periods in which events occur, making it to determine the net income when companies recognize revenues earned, rather than receiving cash and expenses when incurred than paid” (Weygandt, 2008). With the “cash basis this is used for smaller companies when they record revenue after they receive the cash and pay out cash, that can be tremendously misleading for the financial statements” (Weygandt, 2008). The “accrual basis is accepted by the GAAP because it show how well the larger companies financial status is doing, to where the cash basis is not accepted by the GAAP, because the revenue is not being recorded in which the cash it not being received” (Weygandt, 2008). The next reason is to “why the politicians prefer the cash basis over the accrual basis is that the politicians like a more consistent rate than one that will fluctuate all the time, as it works well within the government to be easy to calculate value for tax purposes” (Weygandt, 2008) The “accrual basis will ask for a higher tax rate from the government in larger companies, so this make the politicians feel safe with wanting to use the cash basis over the accrual basis” (Weygandt, 2008). Reference: Weygandt, Jerry J., Kimmel, Paul D., & Kieso, Donald E. (2008). “Financial Accounting” (6th ed.). Hoboken, NJ: Wiley. Retrieved October 21, 2009 from ebook of University of Phoenix.