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Cash Basis and Accrual Basis of Accounting

What is the difference between the cash basis of accounting and the accrual basis of accounting? Which one would you select for a company that has inventory and why? Does the size of the company make a difference? Explain how. What would be the advantages and disadvantages of using one basis of accounting over the other?

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What is the difference between the cash basis of accounting and the accrual basis of accounting?

The main difference resides in the recording of income and expenses. Under the accrual basis, income is realized when earned regardless of when it is collected, and expenses are realized as they are incurred and not when they are paid. Under the cash basis, income is realized when it is received, and expenses are realized as they are actually paid.

Which one would you select for a company that has inventory and why? ...

Solution Summary

This solution discusses the differences between cash and accrual accounting. The best method for inventory is discussed, and other factors that include company size, advantages and disadvantages of each method are also discussed.

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