Answer To Question On Cash Versus Accrual Accounting

Earlier topic on accruals concept and profit versus cash concept refers.

Basically, a majority of small businesses use the cash method of accounting since it is simple to understand.

• The business records the earnings only when the cash is received and records all its expenses when the check or cash is issued. [ Payments are considered made when they are mailed and also includes payment by credit card].
• One may use a combination of the cash method and accrual method if this combination clearly shows his or her income and expense transaction and is used consistently.
• However the business owner cannot switch between cash, accrual or combination accounting.

Answer to Cash versus Accrual accounting question Jim Co   Accrual Accounting Cash Accounting Revenue 10,000 8,000       Rent expense 2,000 2,000 Wages expense 1,600 1,200 Utilities expense 700 700 Repairs expense 500 – Stationery expense 200 – Miscellaneous expenses 100 100 Net Profit or (Loss) 4,900 4,000   [refer to MORE articles on accounting concepts]