Accrual Basis Vs. Cash Basis AccountingEssay Preview: Accrual Basis Vs. Cash Basis AccountingReport this essayAccrual Basis vs. Cash Basis AccountingCash basis and accrual basis accounting are the two principle accounting methods for keeping track of a businesss income and expenses (Fishman, 2012). According to the cash basis method, the income is not recorded until actual cash or payment is received. Likewise, the expenses are also not recorded until they are actually paid for. According to the accrual basis method transactions are recorded as soon as the order is made or the services occur regardless if payment is actually received. The main difference between the two is the timing of when transactions are debited and credited to accounts. However, there is certain criteria to be aware of when choosing an accounting method. As previously noted, most small businesses use cash basis accounting and that is because most small businesses with sales of less than $5 million per year are free to adopt either accounting method. The same is not so when deciding whether or not to use the accrual method. The accrual method must be used if the business has sales of more than $5 million per year or if the business stocks an inventory of items that will be sold to the public and the gross receipts are over $1 million per year.
Commercial accounting and GAAP generally prescribe accrual basis of accounting based on its benefits. As previously mentioned, because of certain guidelines sometimes accrual basis accounting is the only option. However, regardless if whether or not accrual basis is chosen or necessary the benefits are present nonetheless and for that reason it is generally prescribed. Benefits of accrual basis accounting are the following: equal distribution of expenses paid in advance and equal distribution of expenses paid in arrears (Morris, 2012). Cash basis accounting is beneficial to smaller companies especially if most of the sales are cash sales, the company does not have to maintain an inventory and there are no customer accounts of returns. Cash basis accounting is typically much easier and much cheaper to maintain (Moneyinstructor.com, 2012). While there are benefits to both methods the choice between them should be made based off the earnings of the business.
This summary of the principles and rules which are used to calculate the value of certain categories of GAAP accounting is provided as a guide to consider, and is based on an understanding of the business environment and circumstances.
4: How to Study GAAP Data
1. Overview The basic approach used to study GAAP is to refer to the following table:
GAAP Annual Report on Form 10-K as of the date of its effective date 1st of July 2007 2 2% Growth Rate (Year) 4.5 3.0 Annual Percentage Change (Percent) 26% 50% Growth Rate of 1% (Year) 22.5% 50% % Growth Rate of 1% (Year) 23% 54.7%
We are seeking the following information from the financial statements of a company
(where applicable) for the current-year period in accordance with the procedures outlined in The GAAP (1) “Overview of Financial Statements”.
1.1. The Scope of a GAAP Year (Period, Source)
The scope of a GAAP year (period, source) is the annual percentage change in the cost, percentage change in the cost, total cost of goods sold, net of cost of purchase thereof or related items sold in the prior year (2). See 1.2 for the specific financial statement for current- year period in which a report is filed. To be considered a GAAP year, it includes an event (typically a recession) in the GAAP (2) definition (3). The full year of the report, subject to the limitations in section 3.1(a), is called the Annual Income Statement (GAI) and the GAI reports the total revenues (or the fair value of any amount raised as a result of the financial statement).
The annual statement contains all current events for the entire period, beginning with the first quarter (for the year) of 2009 and ending with the second quarter (for the period for which a GAI was submitted and published by a reporting agency or company). The GAI files these events separately from such GAI statements filed for the year.
If a company’s overall annual reporting period is an entire financial year the first reporting period, beginning with the first full year of the report, should be considered as a GAAP year. It is important therefore to consider each quarter’s GAI for each period the current-year year. For example, in a non-GAAP business, most such reporting periods for the year before its completion can be counted as a GAAP year. The GAI for each event should be counted as a GAAP period for that particular period.
If the results for the 12-month period included any of the above indicators a separate return statement or summary of consolidated operating results should be filed and an actual return is filed each financial year in the financial statements for the corresponding period; these should include the actual return and annualized cash flows that they provide for the 10-Q period. One alternative approach is to obtain a short-term financial statement as described above (4) of an entity providing a financial reporting allowance but not in a specific financial report. In that case a short-term report can be submitted.
The annual summary for a year is provided as a summary in accordance with section 3(x) of the Consolidated Statement of Accounting.
The following table summarizes the information which may be included in an annualized financial statement for a corporate and the other forms of financial reporting described in this section.
General Annual Report on Form 10-K (period, source) for the current-year period (1) $ 1 Year Ended December 31, 2010 $ 1,000 $ 1,350 Reconciliation for the period ended December 31, 2011 and 2010 $ 2,500 $ 2,600 Total of
This summary of the principles and rules which are used to calculate the value of certain categories of GAAP accounting is provided as a guide to consider, and is based on an understanding of the business environment and circumstances.
4: How to Study GAAP Data
1. Overview The basic approach used to study GAAP is to refer to the following table:
GAAP Annual Report on Form 10-K as of the date of its effective date 1st of July 2007 2 2% Growth Rate (Year) 4.5 3.0 Annual Percentage Change (Percent) 26% 50% Growth Rate of 1% (Year) 22.5% 50% % Growth Rate of 1% (Year) 23% 54.7%
We are seeking the following information from the financial statements of a company
(where applicable) for the current-year period in accordance with the procedures outlined in The GAAP (1) “Overview of Financial Statements”.
1.1. The Scope of a GAAP Year (Period, Source)
The scope of a GAAP year (period, source) is the annual percentage change in the cost, percentage change in the cost, total cost of goods sold, net of cost of purchase thereof or related items sold in the prior year (2). See 1.2 for the specific financial statement for current- year period in which a report is filed. To be considered a GAAP year, it includes an event (typically a recession) in the GAAP (2) definition (3). The full year of the report, subject to the limitations in section 3.1(a), is called the Annual Income Statement (GAI) and the GAI reports the total revenues (or the fair value of any amount raised as a result of the financial statement).
The annual statement contains all current events for the entire period, beginning with the first quarter (for the year) of 2009 and ending with the second quarter (for the period for which a GAI was submitted and published by a reporting agency or company). The GAI files these events separately from such GAI statements filed for the year.
If a company’s overall annual reporting period is an entire financial year the first reporting period, beginning with the first full year of the report, should be considered as a GAAP year. It is important therefore to consider each quarter’s GAI for each period the current-year year. For example, in a non-GAAP business, most such reporting periods for the year before its completion can be counted as a GAAP year. The GAI for each event should be counted as a GAAP period for that particular period.
If the results for the 12-month period included any of the above indicators a separate return statement or summary of consolidated operating results should be filed and an actual return is filed each financial year in the financial statements for the corresponding period; these should include the actual return and annualized cash flows that they provide for the 10-Q period. One alternative approach is to obtain a short-term financial statement as described above (4) of an entity providing a financial reporting allowance but not in a specific financial report. In that case a short-term report can be submitted.
The annual summary for a year is provided as a summary in accordance with section 3(x) of the Consolidated Statement of Accounting.
The following table summarizes the information which may be included in an annualized financial statement for a corporate and the other forms of financial reporting described in this section.
General Annual Report on Form 10-K (period, source) for the current-year period (1) $ 1 Year Ended December 31, 2010 $ 1,000 $ 1,350 Reconciliation for the period ended December 31, 2011 and 2010 $ 2,500 $ 2,600 Total of
This summary of the principles and rules which are used to calculate the value of certain categories of GAAP accounting is provided as a guide to consider, and is based on an understanding of the business environment and circumstances.
4: How to Study GAAP Data
1. Overview The basic approach used to study GAAP is to refer to the following table:
GAAP Annual Report on Form 10-K as of the date of its effective date 1st of July 2007 2 2% Growth Rate (Year) 4.5 3.0 Annual Percentage Change (Percent) 26% 50% Growth Rate of 1% (Year) 22.5% 50% % Growth Rate of 1% (Year) 23% 54.7%
We are seeking the following information from the financial statements of a company
(where applicable) for the current-year period in accordance with the procedures outlined in The GAAP (1) “Overview of Financial Statements”.
1.1. The Scope of a GAAP Year (Period, Source)
The scope of a GAAP year (period, source) is the annual percentage change in the cost, percentage change in the cost, total cost of goods sold, net of cost of purchase thereof or related items sold in the prior year (2). See 1.2 for the specific financial statement for current- year period in which a report is filed. To be considered a GAAP year, it includes an event (typically a recession) in the GAAP (2) definition (3). The full year of the report, subject to the limitations in section 3.1(a), is called the Annual Income Statement (GAI) and the GAI reports the total revenues (or the fair value of any amount raised as a result of the financial statement).
The annual statement contains all current events for the entire period, beginning with the first quarter (for the year) of 2009 and ending with the second quarter (for the period for which a GAI was submitted and published by a reporting agency or company). The GAI files these events separately from such GAI statements filed for the year.
If a company’s overall annual reporting period is an entire financial year the first reporting period, beginning with the first full year of the report, should be considered as a GAAP year. It is important therefore to consider each quarter’s GAI for each period the current-year year. For example, in a non-GAAP business, most such reporting periods for the year before its completion can be counted as a GAAP year. The GAI for each event should be counted as a GAAP period for that particular period.
If the results for the 12-month period included any of the above indicators a separate return statement or summary of consolidated operating results should be filed and an actual return is filed each financial year in the financial statements for the corresponding period; these should include the actual return and annualized cash flows that they provide for the 10-Q period. One alternative approach is to obtain a short-term financial statement as described above (4) of an entity providing a financial reporting allowance but not in a specific financial report. In that case a short-term report can be submitted.
The annual summary for a year is provided as a summary in accordance with section 3(x) of the Consolidated Statement of Accounting.
The following table summarizes the information which may be included in an annualized financial statement for a corporate and the other forms of financial reporting described in this section.
General Annual Report on Form 10-K (period, source) for the current-year period (1) $ 1 Year Ended December 31, 2010 $ 1,000 $ 1,350 Reconciliation for the period ended December 31, 2011 and 2010 $ 2,500 $ 2,600 Total of