Chapter3Accounting Cycle（(II)Accrual-basis AccountingConcepts of Accrual-basis AccountingAdjusting the AccountsPreparing the Adjusted Trial Balance
Chapter 3 Accounting Cycle (Ⅱ) Accrual-basis Accounting Concepts of Accrual-basis Accounting Adjusting the Accounts Preparing the Adjusted Trial Balance
Accrual-basis AccountingCash-basis AccountingAccrual-basis Accounting
Accrual-basis Accounting Cash-basis Accounting Accrual-basis Accounting
These two bases differ in the manner in whichthey deal with the issue of when to recognizerevenues and expenses.The Cash Basis focus is, as its name implieson the flow of cash. That is to say, whenever cashis collected,revenue is recognized ashaving beenearned. A similar basis for the recognition ofexpenses is used, namely whenever cash is paidout (disbursed) the related expense is recognizedashavingbeenincurred
These two bases differ in the manner in which they deal with the issue of when to recognize revenues and expenses. The Cash Basis focus is, as its name implies, on the flow of cash. That is to say, whenever cash is collected, revenue is recognized as having been earned. A similar basis for the recognition of expenses is used, namely whenever cash is paid out (disbursed) the related expense is recognized as having been incurred
This basis is simple and straight forwardMany smaller business entities use it. However,it has many flaws that interfere with the realmeasurement of an entity's economic activitiesThose activities are measured in terms of theshortwillbe innotthough theyrun.asexistence in the future and thus will not. in thebenefitfromfuture,currentanyreceiveactivities
This basis is simple and straight forward. Many smaller business entities use it. However, it has many flaws that interfere with the real measurement of an entity's economic activities. Those activities are measured in terms of the short run, as though they will not be in existence in the future and thus will not, in the future, receive any benefit from current activities
The Accrual Basis does take into accountthe fact that a business entity's life willextend the future, beyondtheintocurrentperiodtest under thisTherefore, the realbasis ofaccounting is the determination of when revenuesare to be recognized, independent of any cashflow
The Accrual Basis does take into account the fact that a business entity's life will extend into the future, beyond the current period. Therefore, the real test under this basis of accounting is the determination of when revenues are to be recognized, independent of any cash flow