Interview Question: Principles of Accrual vs. Cash Accounting
As a Financial Accountant, it is essential to understand the principles of accrual accounting and how they differ from cash accounting.
Accrual Accounting: In accrual accounting, revenue and expenses are recorded when they are incurred, regardless of when the cash is actually received or paid. This method provides a more accurate representation of a company's financial position and performance over a specific period.
Cash Accounting: Cash accounting, on the other hand, records revenue and expenses only when cash actually changes hands. This method does not necessarily reflect the true financial position of a company as it may not account for expenses or revenue that have been incurred but not yet paid or received.
Understanding the distinctions between accrual and cash accounting is crucial for accurate financial reporting and decision-making within an organization.
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