Cash Vs Accrual Accounts Accounting, Finance, Spss Coursework (Coursework Sample)
1. What is the difference between cash basis and accrual basis accounting? Why is accrual basis preferred over cash basis?
2. If a company initially records prepaid expenses with debits to expense accounts, what type of account is debited in the adjusting entries for these prepaid expenses?
3. What are the steps in recording closing entries? What accounts are affected (give 3 examples) and what accounts are not affected (give 3 examples)?
Cash Vs Accrual Accounting
Cash Vs Accrual Basis Accounts.
Accrual and basis accounts are common terms met in accounting especially when determining revenue and expenses. As discussed by Waldbauer (2018), cash basis easily determines by overall accounting of the cash exchange while accrual accounting narrows down to projected revenue and expenses. Cash basis majorly accounts for cash exchanged at hands, it’s the simplest way of accounting. On the other hand, accrual accounting predicts companies’ wealth by including receivable and payable accounts. Accrual accounting is mostly preferred by large organizations and companies which enables them to manage their accounts for a long time using regular cash flow prediction regularly smoothening their running.
If a company records prepaid expenses, accrual account is adjusted once the payment is made, it's recorded as an asset. The advantage of this ensures the smooth running of companies especially those regularly exchanging services which brings a more accurate picture of the profit graph of the company for a long time. When accounting is done especially on a cash basis, one can say the company is running at a loss, but in the real sense, the company is doing great Moretti (2016).
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