Biz Blog Wk 5

Write a 250 word essay on cash versus accrual accounting.

There are two main types of accounting I am going to be talking about right now. The first is called cash accounting. This type of accounting is very simple and straightforward. Basically as soon as you receive or give money for anything you write it down. The second type of accounting is called accrual accounting. This is when you record anytime you perform a service or give someone a product and make a note of when you are getting paid. For example, say you buy some hamburger buns but you don’t have the money on you so you tell the cashier you will come back on Friday to pay for them. The cashier can either record that they made a sale on Friday (cash accounting) or they can record that they made a sale today and are going to get paid for the sale on Friday (accrual accounting.) Why would you do one over the other? Say you were going to be taxed on Thursday. If you use cash accounting then you’re not going to be taxed on those hamburger buns that you sold because you haven’t recorded that they were sold yet but if you used the accrual accounting method then it will say that you already sold the buns (even if you haven’t gotten paid yet) and you will get taxed on the sale same as normal. One is not necessarily better than the other but each does have its own advantages.

 

 

 

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