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    Basis of accounting

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    Which basis of accounting does most companies use, cash or accrual? Why? Which method is approved by GAAP? Why? What are the positives and negatives of each? Is it legal for an organization to keep two sets of accounting records; one for tax and one for book? Why or why not?

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    It is most common for companies to use accrual accounting if they have any type of outside reporting requirements, or need a clear picture of the financial activity of their company including those items that are yet to be paid, but the expense has been incurred.
    GAAP accounting is always accrual accounting. This is because accrual accounting matches expenses to the period in which they were incurred, providing a more complete picture of the costs associated with revenue generated.

    The positives of accrual accounting ...

    Solution Summary

    This solution discusses the basis of accounting used by companies.

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