Weegy: The difference between cash and accrual basis accounting has to do with the time frame in which revenues and expenses are recorded and reported. Cash basis accounting will suffice if your business is a simple one. [ However, the accrual basis will give a more accurate picture of the results of business operations.
Comparing cash and accrual basis accounting
Cash basis accounting is a very simple form of accounting. When a payment is received for the sale of goods or services, a deposit is made, and the revenue is recorded as of the date of the receipt of funds — no matter when the sale was made. Checks are written when funds are available to pay bills, and the expense is recorded as of the check date — regardless of when the expense was incurred.
The primary focus is on the amount of cash in the bank, and the secondary focus is on making sure all bills are paid. Little effort is made to match revenues to the time period in which they are earned, or to match expenses to the time period in which they are incurred.
Accrual basis accounting matches revenues to the time period in which they are earned and matches expenses to the time period in which they are incurred. While it is more complex than cash basis accounting, it provides much more information about your business. The accrual basis allows you to track receivables (amounts due from customers on credit sales) and payables (amounts due to vendors on credit purchases). The accrual basis allows you to match revenues to the expenses incurred in earning them, giving you more meaningful financial reports.
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User: 25. Under which of the following methods of accounting is an expense recorded when it is incurred, regardless of when cash is paid?
A) Cash
B) Accrual
C) Deferral
D) Receivable
(More) 