Hi guys,
Would appreciate your help on this one please.
Under CASH-BASED ACCOUNTING, if accrued expenses or accrued revenue increases by 10, how does this affect the 3 financial statements.
I understand how it would affect the statements under accrual-based accounting, not too sure on the cash-based.
Also, if someone asks this in an interview setting, is it best to assume accrual-based accounting normally?
Thank you so much in advance for your help.
Best
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Under cash based accounting, accrued expenses or accrued revenue wouldn't have any impact on the statements. Hence the name "cash based accounting" - no cash received = no transactions recorded.
Under GAAP, given the matching principal of accounting, companies are required to recorded expenses when incurred. IMO it would be silly to even ask which method given that companies are required to use the accrual method.
No accruals or deferrals in cash based accounting. You should expect / assume you’ll be dealing with GAAP accrual Accounting in interviews and real life. The closest you usually get to cash Accounting is Statutory Accounting required by states regulators for certain industries such as insurance. Statutory highly resembles cash Accounting.
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