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Question : 160. The accrual and the cash bases of accounting were discussed

 

160. The accrual and the cash bases of accounting were discussed in the textbook. Please (a) define the cash-basis accounting method and state how net income is determined using this method, (b) describe accrual accounting, and (c) indicate which of the two methods (i.e., cash or accrual) is recommended under GAAP. 

161. The accrual basis of accounting is a system that attempts to measure changes in economic value in an entity as they affect the accounting equation, regardless of the timing of actual cash flows.

Required:

First, describe the timing of revenue and expense recognition under the accrual basis versus the cash basis of accounting. Then, give two examples of (1) a revenue-related transaction and (2) an expense-related transaction that would be reported at significantly different points in time using the accrual basis versus the cash basis. 

 

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