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Most businesses and companies today use accrual accounting as the standard accounting practice, because it will usually show the most accurate condition of the company. However, accrual accounting can be more relatively complex and expensive to implement. Nevertheless, the complexity of business transactions today would require more accurate financial information from accrual accounting. Buying and selling on credit over a long period of time can make business transaction become very complicated.
On the other hands, cash basis accounting is a method of bookkeeping of financial events based on cash flow. Think of cash basis accounting as a personal checkbook. Revenues are recorded when the deposit is made, and expenses are recorded when the bill is paid. An advantage of cash flow method is that it gives a great representation of your cash flows. Cash basis accounting is not generally acceptable for most business, because it does not reflect overall profitability. Most countries would require companies to submit tax information with the accrual basis accounting. Businesses that keep their financial records are usually small sized businesses which buys inventory daily for cash.
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