{"id":3989,"date":"2013-04-05T11:03:06","date_gmt":"2013-04-05T09:03:06","guid":{"rendered":"http:\/\/www.officetodo.com\/public\/?p=3989"},"modified":"2013-03-30T11:04:21","modified_gmt":"2013-03-30T09:04:21","slug":"accrual-basis-of-accounting","status":"publish","type":"post","link":"https:\/\/www.officetodo.com\/public\/accrual-basis-of-accounting\/","title":{"rendered":"Accrual basis of accounting"},"content":{"rendered":"<p>As we said with cash basis of accounting that it follows the cash movements and periods pay no role in accounting for transactions, it\u2019s exactly the opposite with accrual basis of accounting. Simply put the accrual basis of accounting means that you have to account your transactions exactly in the period they relate to and in the amounts that relate to this specific period regardless whether any cash has been paid. If there\u2019s for an example service received over two periods, the invoice is also accounted into two of those periods by proportion the service is received in.\u00a0<!--more--><strong><\/strong><\/p>\n<p>Opposite to cash basis of accounting, which is easier to use on daily basis, accrual basis of accounting isn\u2019t this black and white. One of the key factors to always consider is the period the expense or revenue relates to \u2013 when were the services received or goods purchased. Note here that goods you plan to sell later are charged into expenses in the period the sale is actually made and not when you buy the goods themselves.<\/p>\n<p>With accrual basis of accounting you have to charge expenses into periods they relate and also take up liabilities that correspond those expenses. When with cash basis you simply had a pile of invoices that were unpaid (figure of speech meaning you choose where to keep your invoices) with accrual basis they\u2019re always accounted on your balance sheet and \/ or income statement. I would even go as far and say that accrual basis accounting is more fool proof because there\u2019s no room for forgetting something and what\u2019s more, it\u2019s always showing the real financial situation your company is in. How come? Accounting for liabilities on accrual basis and not on cash basis (meaning you\u2019ve got little to no liabilities in your accounts) means at all times you\u2019re aware of the amounts still unpaid. A simple pile of invoices doesn\u2019t give you the idea of the numbers now does it?<\/p>\n<p>And it\u2019s the same with your sales and receivables. Accounting for a sale when it\u2019s made and not when the amount is paid means you can account for revenue sooner, but it also means you\u2019ve got a record of all sales made and balances to be received from your clients. This way you will know whom you still need to collect money from.<\/p>\n<p>All in all when with cash basis accounting you\u2019ve got to follow the money, with accrual basis you\u2019ve got to understand the transaction \u2013 into which period it relates to. There\u2019s no other difference when it comes to those two accounting methods \u2013 entries are still made using the same logic, i.e. debits and credits, and there are still balance sheet and income statement used and so on.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>As we said with cash basis of accounting that it follows the cash movements and periods pay no role in accounting for transactions, it\u2019s exactly the opposite with accrual basis of accounting. Simply put the accrual basis of accounting means that you have to account your transactions exactly in the period they relate to and [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[26,74],"tags":[],"class_list":["post-3989","post","type-post","status-publish","format-standard","hentry","category-2-processes","category-2-7-accounting-in-itself"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/3989","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/comments?post=3989"}],"version-history":[{"count":2,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/3989\/revisions"}],"predecessor-version":[{"id":3992,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/3989\/revisions\/3992"}],"wp:attachment":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/media?parent=3989"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/categories?post=3989"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/tags?post=3989"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}