Accrual Basis

Learn about the accrual basis and why it does a better job of reflecting economic reality than the cash basis.

Course Progress

Course Description

In the fifth lesson of our "Accounting 101” series, “Accrual Basis,” you will progress from cash basis accounting to the more intricate accrual basis, marking a significant shift in understanding financial statements. While the cash basis tracks actual cash flows, the accrual basis focuses on economic activities, recognizing revenues earned and expenses incurred, regardless of cash movements. This deeper approach provides a more accurate picture of a business's performance. By completing this course, you will gain the skills to think like an accountant and master the accrual basis of accounting.

By the end of this course, you will able to answer questions such as:

• Why does the accrual basis do a better job of reflecting economic performance than the cash basis?
• How can the cash basis skew the results of financial reporting?
• How does the matching principle affect financial reporting?

Cash Basis Overview

Why the Cash Basis Doesn't Reflect Economic Reality

Revenue Recognition Under the Accrual Basis

Revenue Recognition Under the Accrual Basis: Payments in Advance

Expense Recognition Under the Accrual Basis

The Matching Principle

Product vs. Period Costs

Allocation of Period Costs

Course Review

Course Quiz

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