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The Corporate Finance Institute Accounting
Accrual vs Cash Basis
of Accounting
In order to properly implement bookkeeping, companies need to first
choose the accounting method they will follow. Companies can choose
between two basic accounting methods: the cash basis of accounting or
the accrual basis of accounting. The difference between these types of
accounting is based on when you, the company, actually record the sale
(money inflow) or purchase (money outflow) in the books.
Cash Basis Accrual Basis
Definition Record transactions only when Record transactions when it
cash is actually received or paid occurs, even if cash is not received
or paid
Example situation: You No transaction recorded Transaction recorded through
purchased 100 units of a product an accounts payable (liability)
and will pay for it next month. account. More later.
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