TeachUcomp, Inc.

 MY CART
  • VIDEO COURSES
    • All-Access Subscriptions
    • Business Licensing
    • Course List
      • Accounting
      • Adobe
        • Acrobat
        • Lightroom Classic
        • Photoshop
        • Photoshop Elements
      • Crystal Reports
      • Employment Skills
        • Interview Skills
        • Resume Skills
      • For Lawyers
        • Excel for Lawyers
        • Outlook for Lawyers
        • QuickBooks for Lawyers
        • Word for Lawyers
      • HTML
      • JavaScript
      • Microsoft Office
        • Access
        • Excel
        • Microsoft Office Suite
        • OneNote
        • Outlook
        • Outlook on the Web
        • PowerPoint
        • Publisher
        • Word
      • Microsoft Project
      • Microsoft Teams
      • QuickBooks Online
      • QuickBooks Pro
      • Sage
        • Peachtree
        • Sage 50
      • SQL
      • Windows
    • Video Course Options
  • SUBSCRIPTIONS
  • MANUALS
    • Adobe
      • Acrobat
      • Lightroom Classic
      • Photoshop
      • Photoshop Elements
    • Crystal Reports
    • For Lawyers
      • Excel for Lawyers
      • Outlook for Lawyers
      • QuickBooks for Lawyers
      • Word for Lawyers
    • HTML
    • JavaScript
    • Microsoft Office
      • Access
      • Excel
      • OneNote
      • Outlook
      • Outlook on the Web
      • PowerPoint
      • Publisher
      • Word
    • Microsoft Project
    • Microsoft Teams
    • QuickBooks Online
    • QuickBooks Pro
    • Sage
      • Peachtree
      • Sage 50
    • SQL
    • Windows
  • REFERENCE CARDS
    • Adobe
      • Acrobat
      • Lightroom Classic
      • Photoshop
      • Photoshop Elements 2023
      • Photoshop Elements 2022
      • Photoshop Elements 2021
      • Photoshop Elements 2020
      • Photoshop Elements 2019
      • Photoshop Elements 2018
      • Photoshop Elements 15
    • Google
      • Google Classroom for Teachers
      • Google Docs
      • Google Drive
      • Google Forms
      • Google Sheets
      • Google Slides
    • Mac OS
      • Mac OS Ventura-Mojave Keyboard Shortcuts
    • Microsoft Office
      • Microsoft Office 365
        • Access for Office 365
        • Excel for Office 365
        • Microsoft Office 365
        • Outlook for Office 365
        • PowerPoint for Office 365
        • Publisher for Office 365
        • Word for Office 365
      • Microsoft Office 2021
        • Access 2021
        • Excel 2021
        • Microsoft Office 2021
        • Outlook 2021
        • PowerPoint 2021
        • Publisher 2021
        • Word 2021
      • Microsoft Office 2019
        • Access 2019
        • Excel 2019
        • Microsoft Office 2019
        • Outlook 2019
        • PowerPoint 2019
        • Publisher 2019
        • Word 2019
      • Microsoft Office 2016
        • Access 2016
        • Excel 2016
        • Microsoft Office 2016
        • OneNote 2016
        • Outlook 2016
        • PowerPoint 2016
        • Publisher 2016
        • Word 2016
      • Microsoft Office 2013
        • Excel 2013
        • Microsoft Office 2013
        • OneNote 2013
        • Outlook 2013
        • PowerPoint 2013
        • Word 2013
      • Microsoft Office for iPad
        • Microsoft Office for iPad
    • Microsoft Teams
      • Microsoft Teams
    • QuickBooks Online
      • QuickBooks Online
    • QuickBooks Pro
      • QuickBooks Pro 2023
      • QuickBooks Pro 2022
      • QuickBooks Pro 2021
      • QuickBooks Pro 2020
      • QuickBooks Pro 2019
      • QuickBooks Pro 2018
      • QuickBooks Pro 2017
      • QuickBooks Pro 2016
      • QuickBooks Pro 2015
      • QuickBooks Pro 2014
    • Sage
      • Sage 50 2019
      • Sage 50 2018
    • SQL
      • SQL
    • Windows
      • Windows 11
      • Windows 11 and 10 Keyboard Shortcuts
      • Windows 10
  • STICKERS
    • Chrome OS
      • Chrome OS for Chromebooks
    • Mac OS
      • Mac OS Ventura
      • Mac OS Monterey-Mojave
    • Microsoft Office
      • Word and Excel (Mac) 2022
      • Word and Excel (PC/Windows) 2021-2016 and 365
    • QuickBooks Desktop
      • QuickBooks Desktop (PC/Windows) 2023
      • QuickBooks Desktop (PC/Windows) 2022-2015
    • Windows
      • Windows 11 and 10
  • SUPPORT
    • Company
      • About Us
      • Blog
      • Contact Us
      • Our History
      • Our Philosophy
        • Customer Service
        • Mission
      • Policies
      • Testimonials
    • Contact Us
    • FAQ
    • Help
    • Lost Password
    • Register a Product
  • LOGIN
    • Manage My Account
    • Member Login
    • My Courses
Shop Now

Small Business Accounting- Cash Versus Accrual Basis Accounting

by Keeley Byrnes / Wednesday, June 12 2013 / Published in Latest, Small Business Accounting

There are two types of accounting: accrual and cash. It’s important for a small business to understand the two systems in order to select the correct accounting methods. In this post, we will discuss the differences between cash basis and accrual basis accounting.

 

 

 

 

 

Accrual basis accounting means that companies record transactions in the periods in which the events occur, even if no cash was exchanged. In this system, companies record revenues when earned, and recognize expenses when incurred.

Cash basis accounting means that the company records revenue only when the cash is received. The cash basis is not compliant with GAAP*, but a small business that does not have a broad base of shareholders or creditors does not necessarily need to comply with GAAP*. So the accrual method is typically used for large corporations, while sometimes the cash method is used in smaller businesses.

Let’s look an example to get a better understanding of both methods. In this example, our company has purchased supplies in order to complete a paint job. Since the job started in December 12 and was not completed until February 2013, we were not paid until 2013. The accrual method requires us to record the expense and revenue from the job in the year the expenses were incurred. In the cash method, we record receiving payment when the company physically receives payment.

  

2012 2013
Economic Event Purchased supplies for a painting job Received payment for painting job
Accrual Basis Revenue: $100,000 Revenue: $0
Expense: $10,000 Expense: $0
Net Income: $90,000 Net income: $0
Cash Basis Revenue: $0 Revenue: $100,000
Expense: $10,000  Expense: $0
Net loss: $(10,000) Net income: $90,000

 

While both methods display the same numbers, it’s important to understand the effects of recording economic events at different times on financial statements. It’s also important for tax purposes. Different methods can change the appearance of events. The cash method tends to be more misleading than the accrual method when analyzing financial statements. (This chart looks like there was a loss for 2012. This amount was actually an expense for a job completed in 2013. This can be misleading or confusing to those reading financial data.)

Also, it’s important to note that once a company chooses a method of accounting, they must stick with it throughout the year. They also may need to get approval from the IRS to change the method later on.

 

 

 

*GAAP stands for Generally Accepted Accounting Principles. These principles are covered in more detail in our accounting tutorial.

Tagged under: accountant, accounting, accrual, basis, cash, class, course, CPA, guide, help, how, information, learn, manual, software, video

About Keeley Byrnes

Keeley is our Director of Marketing and has been with TeachUcomp since 2010. Keeley manages all aspects of our Marketing Department, acts as liaison for our reseller and affiliate partners and also authors courses in software and taxation.

What you can read next

A picture of the window that appears after you create a new blank database in Access.
Create a Database in Access – Instructions
Microsoft Project Printing Tutorial- Printing Views in Project 2013: This is a picture of the
Microsoft Project Printing Tutorial- Printing Views in Project 2013
A picture of the “Burn a disc” window that appears when you burn a CD or DVD in Windows 11.
Burn a CD or DVD in Windows 11 – Instructions

 

Recent Posts

  • Watch Folders in Photoshop Elements - Instructions: A picture of the “Watch Folders” dialog box in Photoshop Elements.

    Watch Folders in Photoshop Elements – Instructions

    Watch Folders in Photoshop Elements: Overview  ...
  • A picture of a user performing an action on an item within the Income Tracker in QuickBooks Desktop Pro.

    The Income Tracker in QuickBooks Desktop Pro – Instructions

    The Income Tracker in QuickBooks Desktop Pro: O...
  • A picture showing how to select text in Photoshop Elements within a bounding box in a type layer.

    Select Text in Photoshop Elements- Instructions

    Overview of How to Select Text in Photoshop Ele...

Categories

Archives

  • GET SOCIAL

© 2001-2023 Copyright TeachUcomp, Inc. All rights reserved.

TOP
Sale! $49 All-Access 2 Days 7 Hours 2 Minutes 31 Seconds      $199 $49 Entire Library!
See Deal