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Financial statements
Accrual versus cash accounting
Accrual records revenue when earned and costs when incurred, regardless of when cash moves; cash basis records them when cash moves. Accrual gives the right period picture; cash basis gives the bank balance.
Owned by: Entry analystTest band: Entry analyst
In practice
A business with invoices, inventory, or prepaid anything needs accrual books. Cash-basis books make the collection month look great and the work month look terrible.
The kind of thing the test asks
- A customer is invoiced $10k in March and pays in May. Under accrual accounting, the revenue belongs in…
More in financial statements
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