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Accrual Accounting The Facts Issues And Resolutions

Author : Todd Roth

This composition is going to have the comprehension that you have a basic comprehension of accounting foundation. Just in case you do not then I will attempt to fill you in at once with a very natural lesson about different basis of accounting. Probably the most natural basis of keeping books and records is the cash basis. Using this method, nothing is recorded unless it has an effect on cash. It issimilar to an analyzed check register. The defense the cash basis is not used by many is that it missesproceedings that have not yet affected cash but can have a very critical effect on the entity.

Therefore when you want to include even items that have not yet been modified the cash balance you go into the domain of accrual accounting. Accrual basis accounting will keep accounts and transactions for items such as sales that have not yet been paid for or expenses incurred but not due to be paid. This is done by having such accounts as accounts receivable to record sales not yet paid for and accounts payable for expenses incurred but not due. These accounts just mention in a sense replace the cash account in these instances.

So now that you understand the difference between the two methods you will be also able to understand why the cash basis, though it is simple, can be missing some crucial information. So what can you do if you do not want to keep such detailed accrual basis records. it could be tedious booking every single sale before it happens and then reversing the entry when payment comes in.

The easy way to resolve this is to make a cash to accrual adjustment at the end of the year or period when you want to issue financial statements. This way books are kept on the cash basis but the records can be presented as accrual.

For more information on how to make this adjustment please visit my website.

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For more information about creating an income statement by using an < ahref=>income statement example or a < ahref=>income statement samples .

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Submitted : 2010-10-06    Word Count : 870    Times Viewed: 263