Accrual Basis of Accounting

Accrual Basis Accounting is one of the popular and general used methods of accounting, which reports expenses when incurred, and income when earned, as opposite to the cash basis accounting  that reports expenses when pain and income when received. In the accrual basis accounting method, the business organizations do have some discretions regarding when expenses and income are recognized, however there are rules governing the recognition. In addition, firms should make prudent assements against revenues, which are posted but the one, which are received, which is called as bad debt expenses.

Accrual basis accounting is the simply posting of expenses and income when they occur, instead of deferring the posting until a later date and this type of accounting is used by many of the business organization.

Some of the benefits of using accrual basis of accounting method are mention below:

As opposite to cash basis accounting, the main use of the accrual basis accounting method is to make the posting of the transactions during the time it occurs. This means that the sales are posted instantly and the expenses are recorded at once and any other kind of transactions goes on the books during the time when that event takes places or happens. This in contrast to various other methods, where the transactions is actually not posted until the payment is received or made.  

One of the main advantages of the accrual accounting method is that it is very easy to find out the total financial health of the business organization.  Since the sales that are made to the consumers are already recorded, it is quite simple and easy to see how much income or revenue is due in the business organization until now. An also, because any outstanding expenses of the firm are already recorded, it is quite easy to see what payments to sellers or vendors are outstanding.

Questionnaire:

• What is accrual basis of accounting?
• What are the advantages of accrual basis of accounting?