Cash and Accrual Accounting Flashcards
• the distinction between cash and accrual methods of accounting • accrual basis of accounting as per the Conceptual Framework for Financial Reporting (the Conceptual Framework) (3 cards)
1
Q
2 Methods available to a business to calculate its profit or loss in the Income Statement
A
Cash Accounting & Accrual Accounting
2
Q
Cash Accounting:
A
- Income is included in the financial records in the Accounting Period in which money is received from a service provided or from a sale of inventory.
- An expense is included in an Income Statement in the Accounting Period in which the expense is paid.
- Small service businesses often use this method of accounting.
3
Q
Accrual Accounting:
A
- Income is included in the financial records in the Accounting Period in which a service is provided, or a sale of inventory is made.
- An expense is included in the financial records in the Accounting Period in which the expense is incurred/generated.
- Most businesses use this method of accounting.
