MGT120H5 Chapter Notes - Chapter 3: Deferral, Accrual, Accounts Payable
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MGT120H5 Full Course Notes
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Explain how accrual accounting differs from cash-basis accounting. Cash-basis accounting: record only business transactions involving the receipt or payment of cash. Accrual accounting: the receipt or payment of cash is irrelevant to deciding whether a business transaction should be recorded. It is probable that the business will receive the economic benefits associated with the transaction, which is usually come in the form of cash receipts. A prepaid expense is an expense a company has paid for an advance of actually using the. Recorded as an asset when the cash payment is made which results in a deferral of the expense to the future period in which the related benefit is realized. Depreciation: gradually reduce the value of the asset over its useful life by expensing the portion of the asset"s economic benefits that has been used up during each accounting period. Its normal balance is the opposite that of the companion account.
