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Cash or Accrual Basis of Accounting

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Briefly explain which basis of accounting and the reasons why that basis of accounting is not desirable for most organizations.

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Discusses cash and accrual basis of accounting.

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The Basis of Accounting Definition:

Method of recognizing revenues and expenses. Under the accrual basis of accounting, revenues are recognized as goods are sold and services are rendered regardless of the time when cash is received. Expenses are recognized in the period when the related revenue is recognized and the difference is the net income figure for a particular period. Under the cash basis of accounting, revenues are recognized only when money is received and expenses are recognized only when money is paid. Cash basis financial statements, however, distort ...

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