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Cash Vs. Accrual Accounting

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Before starting this self study program, please go through the instructional document.

Overview

  • Cash Method
    4 mins
  • Cash Basis Accounting Preference
    10 mins
  • The Accrual Method
    20 mins
  • Accrual Concept Examples
    31 mins
  • Example of Accrual and Cash Methods
    49 mins

Course Description

Within accounting or bookkeeping, two types of accounting methods are utilized to record transactions. These methods are at the core of the accounting/bookkeeping function.  They  include:

  • Cash Accounting – recognizes revenue and expenses only when money changes hands.
  • Accrual Accounting – recognizes revenue when it is earned and expenses when they are billed out (but not paid).

To ensure your entity is properly recording and tracking transactions, it is important to understand the basis variances between cash and accrual accounting and when they are best utilized. 

The cash approach may be preferred where all or most of the following conditions apply. The company: Uses single-entry accounting; has relatively few financial transactions per day; does not sell on credit (does not deliver goods or services and then invoice customers for payment later); at the time of sale, customers must pay either by cash, written check, bank transfer, or 3rd-party credit/debit card; has very few employees.

The accrual basis is used by all larger companies, for several reasons: its use is required for tax reporting when sales exceed $5 million; public companies that trade shares on stock exchanges are required to follow GAAP which require accrual-based accounting; investors want the most accurate picture possible of the state of a company's finances. If in doubt check with your accountant as to which method you should use; a company’s FS can only be audited if they have been prepared using the accrual basis. 

This course focuses on the concepts of accounting methods specifically the cash basis accounting method and the accrual basis accounting method.  We examine how each method impacts a business’ financial position and financial statement.  We utilize various scenarios and compare and contrast the two methods.


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Learning Objectives

  • To explore the cash basis of accounting.
  • To explore the accrual basis of accounting.
  • To introduce the concept of reversing entries.
  • To examine the advantages and disadvantages of cash basis and accrual basis accounting.
  • To examine the analytics of accrual accounting.
  • To compare and contrast the accounting methods through examples.

Who Should Attend?

  • Accountant
  • Accounting Firm
  • Accounting Managers
  • CPA (Industry)
  • CPA - Mid Size Firm
  • CPA - Small Firm
  • CPA in Business
  • Entrepreneurial Accountant
  • Entrepreneurial CPA
  • Senior Accountant
  • Staff of Accounting Firm
  • Young CPA