Question 1

What is accrual accounting?

Accepted Answer

Accrual accounting is a method where transactions are recorded when they occur, rather than when cash is received or paid. It ensures that revenues and expenses are recorded in the period when they are earned or incurred.

Question 2

How does accrual accounting work?

Accepted Answer

Accrual accounting works by recognizing revenue when it's earned, and expenses when they are incurred, regardless of when cash changes hands. This method offers a clearer view of a company's financial health.

Question 3

What are the key principles of accrual accounting?

Accepted Answer

The two main principles of accrual accounting are the matching principle, which ensures expenses are recorded in the same period as the related revenue, and the revenue recognition principle, which records revenue when earned, not when received.

Question 4

How do journal entries work for accruals?

Accepted Answer

In accrual accounting, the journal entry for accrued expenses involves debiting the expense account and crediting accounts payable. This reflects the incurred expenses that have not yet been paid, increasing both expenses and liabilities.

Question 5

What is the difference between accrual accounting and cash accounting?

Accepted Answer

The main difference between accrual accounting and cash accounting is timing. In accrual accounting, transactions are recorded when they occur, while in cash accounting, they are only recorded when cash is exchanged. Accrual accounting offers a more accurate view of financial performance.

Difference Between Accrual Accounting and Cash Accounting

Accrual Accounting: Definition, Types, Benefits, and Example