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.