BUS 214 Chapter Notes - Chapter 3: Uptodate, Financial Statement, Accounts Payable
Document Summary
Lo 1: explain how accrual accounting differs from cash-basis accounting. Accounting can be based on either the accrual basis or the cash basis (business does not necessarily have to receive/pay cash) Accrual accounting records the impact of a business transaction as it occurs. Cash-basis accounting records only cash transactions - cash receipts. Gaap require accrual accounting (revenues) and cash payments (expenses) Making the sale - not collecting the cash - increases your wealth. Cash-basis accounting does not include sales made on account (only when you receive cash/convert account) = leads to 2 problems. Bs defect: there would be no receivables = assets understated. Is defect: ignoring sale on account understates revenue and net income. Includes cash transaction such as: collecting cash from customers, receiving cash from interest earned, paying salaries, rent and other expenses, borrowing money, paying off loans, issuing stock.
