Accrual Basis vs. Cash BasisAccrualBasisCashBasisRevoRevenuesareueszedwrecognized whenrerpghen福cath is Nceivdandearnedandexpensesrdedex,arerecognizedwhenensesecwhenpaid.incurred.NotGAAPWHUTAccountingdepartmentofmanagementschool
WHUT Accounting department of management school Accrual Basis vs. Cash Basis Accrual Basis Revenues are recognized when earned and expenses are recognized when incurred. Cash Basis Revenues are recognized when cash is received and expenses recorded when cash is paid. Not GAAP
Accrual Basis vs. Cash BasisFastForward paid $2,400 for a 24-month insurancepolicy beginning December 1, 2009Example:Onthe cashbasis theentire $2,4o0 would berecognizedas insurance expensein2009No insuranceexpensefromthispolicywouldberecognizedin2010or2011,periods covered by the policyWHUTAccountingdepartmentofmanagementschool
WHUT Accounting department of management school Accrual Basis vs. Cash Basis Example: FastForward paid $2,400 for a 24-month insurance policy beginning December 1, 2009. On the cash basis the entire $2,400 would be recognized as insurance expense in 2009. No insurance expense from this policy would be recognized in 2010 or 2011, periods covered by the policy
1Cash Basis1InsuranceExpense2009FebMarJanApr$$$$--、-JunJulMayAug$-$$$---OctNovDecSep$$$$ 2,400--WHUTAccountingdepartmentofmanagementschool
WHUT Accounting department of management school Cash Basis Jan Feb Mar Apr $ - $ - $ - $ - May Jun Jul Aug $ - $ - $ - $ - Sep Oct Nov Dec $ - $ - $ - $ 2,400 Insurance Expense 2009
11Accrual BasisExpense2009InsuranceSepOctNovDec$$$$1002010InsuranceExpenseFebMarJanApr$$$$100100100100JulMayJunAug$$$$100100100100OctSepNovDec$$$$100100100100WHUTAccountingdepartmentofmanagementschool
WHUT Accounting department of management school Accrual Basis Sep Oct Nov Dec $ - $ - $ - $ 100 Jan Feb Mar Apr $ 100 $ 100 $ 100 $ 100 May Jun Jul Aug $ 100 $ 100 $ 100 $ 100 Sep Oct Nov Dec $ 100 $ 100 $ 100 $ 100 Insurance Expense 2009 Insurance Expense 2010
Accrual Basis vs. Cash Basis2011InsuranceExpenseJanFebMarApr$$$$100100100100JulMayJunAug$$$$100100100100SepOctNovDec$$$$100100100Onthe accrual basis$1ooof insuranceexpense is recognized in 2009,$1,200 in2010, and $1,100 in 2011.The expense is matched withthe periodsbenefited by the insurance coverageWHUTAccountingdepartmentofmanagementschool
WHUT Accounting department of management school Accrual Basis vs. Cash Basis Jan Feb Mar Apr $ 100 $ 100 $ 100 $ 100 May Jun Jul Aug $ 100 $ 100 $ 100 $ 100 Sep Oct Nov Dec $ 100 $ 100 $ 100 $ - Insurance Expense 2011 On the accrual basis $100 of insurance expense is recognized in 2009, $1,200 in 2010, and $1,100 in 2011. The expense is matched with the periods benefited by the insurance coverage