'Accrual Basis over Cash Basis Accounting Essay\r'

'There are two story method actings that companies work to report tax incomes and expenses. The two methods are the accrual rear end and gold infrastructure. The difference in the write up processes testament fundamentally change the way the organization reports its bills, so a decision must be make prior to written text any legal proceeding.\r\nAccrual base Accounting\r\nAccrual derriere accounting is the method accepted by commercial accounting and the planetary accepted accounting regulations. â€Å"Accrual-basis accounting means that transactions that change a company’s monetary statements are showed in the periods in which the caseful occur, even if the interchange was not exchanged.” (Kimmel, Weygandt, & angstrom; Kieso, 2009) This accounting method follows both the gross recognition linguistic rule, by reporting the revenue when it is earned and the matching principle by reporting the expense when it is incurred. â€Å"Recording revenue be fore the money has come in thunder mug potentially misrepresent a firm’s financial results, allowing a company to show sales that may never actually be nonrecreational for (say, because of financial problems with the buyer).” (Cash Basis Vs. Accrual Basis Accounting, 2002) Accountants exact the accrual method of accounting over the immediate payment basis because it more accurately represents the company’s finances.\r\nCash Basis Accounting\r\nCash basis accounting is the other method of reporting revenues and expenses. When use cash basis accounting, â€Å"companies record revenue scarcely when cash is received. They record expense only when cash is paid.” (Kimmel, Weygandt, & Kieso, 2009) This method does not follow the revenue recognition principle or the matching principle, therefore, is not a generally accepted accounting principle for abundant corporations. â€Å"The IRS altered its position in 2000, allowing taxpayers who require gross receipts of $1 million or less to use the cash method (Rev. Proc. 2000-22).” (Gilmore & Miller, 2003) This change allows for half-size businesses to use the cash basis method, so they are only paying taxes on income received. The cash basis accounting method benefits small businesses and individuals but is not an ideal quality for large corporations.\r\nA company must decide what accounting process is more beneficial prior to recording any transactions as this affects the way they record the information. The accrual basis method records the revenue and expenses when they occur, and the cash basis method records revenue only when cash is received and expenses only when paid. The cash reporting method tends to misrepresent an organization’s financial feat by reporting expenses prior to receiving payment for the service. The accrual basis accounting method reports financial transactions more accurately and, therefore, is the most appropriate choice for large busine sses.\r\n'