The Difference between Accrual and Cash AccountingThe two methods of accounting are acceptable but companies select the method to be used in their business. The bottom line results are at times very different when the two methods are compared. The cash method is a method mainly used in the small businesses. In this method, expenses and income are not counted until the transactions are done i. e. a check or cash is received for income and money is paid for the expenses. Since the cash method is easy to use, the business owner can use it without the need of an accountant.
On the contrary, accrual method requires one to have professional skills if he or she is to use it (Donleavy 1994). In the cash method, the money is put in the cash records immediately it is received and money is accounted for immediately it is paid or it goes out. For instance, when a customer buys computers and printers from Del Company, the money is entered in the books immediately the cash is received. However, if a university makes an order for the computer systems to be delivered and this is done, only the money received in cash or in the form of cash.
Any money in dept is not recorded or any money to paid on a future day. In the same case, if Del company has services or goods that it has not paid for, for instance electricity bills, money to be paid for repairs done or the money for ordered spare parts that are not yet paid for, these figure are not entered in the books. On the other hand, accrual method takes account of every cent even if it is in dept.
since Del is an international company and handles a lot of cash, it uses accrual accounting while Kerry bakers use the cash method. Accrual method is very professional and the statements are in such a way that they are in accord with the generally accepted accounting principles. This method ensures that the timing of the expenses and revenue of a business are well matched. This means that sales of services and good are recorded as soon as an invoice is received and the services or goods are delivered.
Unlike in the cash method, the cost of services and goods delivered is recorded regardless of whether a company has received the cash or not. Any expense that has been incurred and is payable or due is also recorded (Donleavy 1994). This means that even if the dept will be paid next month, it is still recorded. These kinds of records are very important for the Del Company since it handles a gross sale of more than ten million dollars.
This method is very important in the performance of a company since any economic event is recognized and recorded. To articulate a Del company’s current financial condition, the expected cash outflows/inflows and current cash outflows/inflows are combined. Accrual Accounting Is a Better Indicator of Future Cash Flow