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Accrual Accounting vs. Cash Basis Accounting definitions Flashcards

Accrual Accounting vs. Cash Basis Accounting definitions
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  • Accrual Accounting
    System recognizing revenue and expenses when they are earned or incurred, regardless of cash movement, providing a more accurate financial picture.
  • Cash Basis Accounting
    Method recording revenue and expenses only when cash is received or paid, often used by small businesses for its simplicity.
  • GAAP
    Set of standardized accounting principles in the United States requiring accrual accounting for financial reporting.
  • Financial Statements
    Periodic reports summarizing a company's financial position and performance, acting as progress reports for stakeholders.
  • Revenue Recognition
    Process of recording income when a product is delivered or a service is completed, not necessarily when cash is received.
  • Expense Recognition
    Recording of costs when they are incurred, matching them to the period in which the related benefit is received.
  • Journal Entry
    Formal record in accounting documenting the details of a business transaction, triggered by specific events.
  • Accounts Receivable
    Amounts owed to a business by customers for goods or services delivered on credit, representing future cash inflows.
  • Liability
    Obligation arising from past transactions, such as unpaid wages or debts, requiring future payment or settlement.
  • Time Period Concept
    Accounting principle dividing business activities into regular intervals, such as months or years, for reporting purposes.
  • Credit Sale
    Transaction where goods or services are provided to a customer with payment to be made at a later date.
  • Cash Sale
    Transaction in which payment is received immediately upon delivery of goods or services.
  • Matching Principle
    Guideline ensuring expenses are recorded in the same period as the revenues they help generate, enhancing accuracy.
  • Adjusting Entry
    Accounting update made at the end of a period to allocate income and expenses to the correct period.
  • Progress Report
    Summary provided by financial statements to show a company's financial status at regular intervals.