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  • Introduction To Accrual Accounting

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    Kedar Nath Chhatwal
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    This document provides an introduction to accrual accounting. There are two main methods of accounting: cash basis and accrual basis. Cash basis accounting records financial transactions when cash is received or spent, while accrual basis accounting records transactions when the obligation to pay or right to receive payment is incurred. The document explains that accrual accounting provides a more accurate picture of a company's financial position compared to cash basis accounting. It also lists the key learning objectives, which include defining the two methods and understanding the benefits and limitations of each approach.

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    ACCURAL ACCOUNTING

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    Introduction to Accrual Accounting

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    This document provides an introduction to accrual accounting. There are two main methods of accounting: cash basis and accrual basis. Cash basis accounting records financial transactions when cash is received or spent, while accrual basis accounting records transactions when the obligation to pay or right to receive payment is incurred. The document explains that accrual accounting provides a more accurate picture of a company's financial position compared to cash basis accounting. It also lists the key learning objectives, which include defining the two methods and understanding the benefits and limitations of each approach.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    5 views1 page

    Introduction To Accrual Accounting

    Uploaded by

    Kedar Nath Chhatwal
    This document provides an introduction to accrual accounting. There are two main methods of accounting: cash basis and accrual basis. Cash basis accounting records financial transactions when cash is received or spent, while accrual basis accounting records transactions when the obligation to pay or right to receive payment is incurred. The document explains that accrual accounting provides a more accurate picture of a company's financial position compared to cash basis accounting. It also lists the key learning objectives, which include defining the two methods and understanding the benefits and limitations of each approach.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    Introduction to Accrual Accounting https://training.moodys.com/moodys/nd/fresco/content/packages/tango/...

    Introduction to Accrual Accounting: Accrual Accounting Basics

    Introduction

    There are two methods used to account for and record financial transactions: the cash method and the accrual method. The
    performance of a business is reflected differently in its financial statements depending on the method used to account for
    transactions. Cash accounting records the sources and uses of cash presently held, whereas accrual accounting records what
    the financial situation will be if and when all transactions are settled in cash.

    In this lesson, we explore the differences between the cash and accrual methods of accounting, and we explain the benefits and
    shortcomings of each approach, both in terms of their value in helping you understand the business and from a credit analysis
    perspective. In particular, we focus on the accrual approach because most businesses report their financial results using this
    method. Moreover, the Company Act, 2013 makes it mandatory for businesses to report their financial results using the accrual
    method. The knowledge you gain in this lesson will help you understand the financial position of businesses you analyse, which
    in turn will be useful as you analyse borrower financial risks and make loan decisions.

    By the end of this lesson, you should be able to:

    Define cash accounting.


    Define accrual accounting.
    Distinguish between the cash method of accounting and the accrual method of accounting.
    Explain the benefits and shortcomings of cash accounting.
    Explain the benefits and shortcomings of accrual accounting.
    Explain the reasons why credit institutions use accrual accounting.

    Cash vs. Accrual Accounting Method

    NOTE: The lessons contain links to additional content to help you to grasp concepts and perform well in your assessment.
    Please ensure you review.

    What You Need to Know

    You should be able to explain how the accrual accounting method of financial accounting differs from the cash accounting
    method. You should also understand the value of accrual accounting as the foundation on which to base your analysis of a
    business’s financial performance, because it is the accrual method of accounting which indicates the better results for the
    purpose of analysis.

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