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Define accrual accounting and contrast it with cash basis accounting.
What four conditions must normally be met for revenue to be recognized under accrual basis
accounting?

Reporting Cash Basis versus Accrual Basis Income
Mostert Music Company had the following transactions in March:

a. Sold instruments to customers for $10,000; received $6,000 in cash and the rest on account.
The cost of the instruments was $7,000.

b. Purchased $4,000 of new instruments inventory; paid $1,000 in cash and owed the rest on
account.

c. Paid $600 in wages for the month.
d. Received a $200 bill for utilities that will be paid in April.
e. Received $1,000 from customers as deposits on orders of new instruments to be sold to the
customers in April.

Cash Basis Income Statement Accrual Basis Income Statement
Revenues: Revenues:
Cash sales $ Sales to customers $
Customer deposits
Expenses: Expenses:
Inventory purchases Cost of sales
Wages paid Wages expense
Utilities expense
Cash income $ Net income $

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The response addresses the queries posted in 506 words with references.

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The response addresses the queries posted in 506 words with references.

//As per the guidelines, we have to understand the concept of 'Accrual Accounting'. Then, we will discuss about the differences between the Accrual accounting and Cash basis accounting, which will assist us in understanding the differences between the two types of accountings, effectively.//

Accrual Accounting

The Accrual Accounting is the most widely used accounting method. All the business transactions are recorded on the delivery of the product and services without considering the receipt of amount. The income and expenses are recorded when it occur; whether amount is paid/received or not. It helps to provide true financial situation and obligation of a company (Daily, 2007).

Contrast with Cash Basis Accounting

The Cash Basis Accounting is the different accounting system from the Accrual Accounting Method. As the name denotes, in the ...

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Ashish Sharma, MBA (IP)
Education
  • MBA (IP), International Center for Internationa Business
  • BBA, University of Rajasthan
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