Cash vs. Accrual Accounting and the Importance of Income Statements and Balance Sheets
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- Discuss the meaning of cash vs. accrual accounting.
- Discuss the purpose of the income statement and the balance sheet.
- What do these two statements tell us?
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Solution Summary
This solution explains the concepts of cash accounting and accrual accounting and the purposes of the income statement and balance sheet.
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Cash and accrual accounting methods are used by organizations to record their revenue and expenses. However, they differ on a fundamental level - the timing of when sales and expenses are credited or debited to an account. In cash method accounting, sales are recorded when the cash is actually received. In other terms, only when the cash actually changes hands. However, under the accrual ...
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