Get Access to My Course “Fundamentals of Financial Analysis” HERE: https://courses.xelplus.com/p/financial-analysis
There are 2 different accounting methods: Cash Accounting and Accrual Accounting. In this video I will show you the difference between accrual basis versus cash basis of accounting by telling you a story. You will get a quick overview how each of these methods impacts the timing of recording a company’s transactions.
In Cash Accounting companies record transactions only when cash is exchanged. This means that revenue is recorded only when cash is received. And expenses are recorded only when cash is paid. Therefore, this method is intuitive and simple to understand. It helps you keep track of your cash balance, easy to apply, and an accepted accounting method also for tax purposes. Cash accounting method can be your accounting method of choice especially if your business is small and simple, and mainly cash based. On the other hand, cash accounting may not provide a full picture of the business at a certain point in time.
In Accrual Accounting companies record transactions when they happen rather than when cash changes hands. Revenue is recorded when earned, meaning when a sale is made and the products or services are delivered to the customer. Even if the customer hasn’t paid yet. Expenses are recorded when incurred regardless even if they’ve not been paid to the supplier yet. Accrual Accounting provides a much better picture of what is happening in a business. If the company reports under GAAP or IFRS then Accrual Accounting is the accepted method. However, it does not focus on cash flows which is why reported income under this method does not equal cash-in.
00:56 What is Cash Accounting
02:38 Accrual Accounting Explained
03:27 Cash and Accrual Accounting explained with a Story
09:13 Advantages and Disadvantages for both methods
Check out the full article here: https://www.xelplus.com/cash-vs-accrual-accounting
In the next video of our accounting basics series, we’ll take a look at the Cash Flow Statement.
★ My Online Excel Courses ► https://www.xelplus.com/courses/
✉ Subscribe & get my TOP 10 Excel formulas e-book for free
https://www.xelplus.com/free-ebook/
EXCEL RESOURCES I Recommend: https://www.xelplus.com/resources/
Get Office 365: https://microsoft.msafflnk.net/15OEg
Microsoft Surface: https://microsoft.msafflnk.net/c/1327040/451518/7593
GEAR
Camera: https://amzn.to/2FLiFho
Screen recorder: http://techsmith.pxf.io/c/1252781/347799/5161
Microphone: https://amzn.to/2DVKstA
Lights: http://amzn.to/2eJKg1U
More resources on my Amazon page: https://www.amazon.com/shop/leilagharani
Let’s connect on social:
Instagram: https://www.instagram.com/lgharani
Twitter: https://twitter.com/leilagharani
LinkedIn: https://at.linkedin.com/in/leilagharani
Note: This description contains affiliate links, which means at no additional cost to you, we will receive a small commission if you make a purchase using the links. This helps support the channel and allows us to continue to make videos like this. Thank you for your support!
#Accounting
Video Rating: / 5
Cash Accounting is an over-simplified method of Accounting and often used by small businesses. The proper GAAP-accepted method is the Accrual Accounting. In this video we dive into an example business, examine its transactions, record the journal entries, and then see the IMPACT Cash Accounting has on the presentation of the Income Statement as proof it’s a misleading method of Accounting.
Link to purchase a MORE EXPANDED version of the file shown in the video (highly recommend it for students and professionals):
https://thefincontroller.com/p/accrual-vs-cash-accounting-guide
My Best-Selling Products:
Get My “Night Before the Accounting Interview Guide” including All Levels Q&A:
https://thefincontroller.com/p/the-night-before-your-accounting-interview-guide-for-all-levels
📈 Get off MY ONLINE COURSE ON FINANCIAL METRICS (code: Save25)
https://thefincontroller.com/p/learn-financial-metrics-kpis/?product_id=2659754&coupon_code=SAVE25&preview=logged_out
My Recommended Products (I will only share what I love ❤ here)
⚪️ 🧠 Roger CPA Review Course (get 50% off): https://www.uworld.com/productreferral.aspx?ukey=8lzsxx2bT8qzYRxekeTKyWQ3d3d
⚪️ 📚 Learning//SkillShare (get 2 weeks free): https://www.skillshare.com/r/profile/Bill-Hanna/7521537
My Recommended Finance & Accounting Books 📚+🧠=💥
⚪️ Auditing: https://amzn.to/361wJhZ
⚪️ Forensic Accounting: https://amzn.to/2G6t9bo
⚪️ Introduction to Finance: https://amzn.to/2ExgUEA
⚪️ Introduction to Managerial Accounting: https://amzn.to/33SEyE4
———————————————————————
Hang Out with me on social media:
📱https://www.tiktok.com/@thefinancialcontroller
🙋🏼♂️https://www.facebook.com/groups/780732429036886/?source_id=101273467885666
📸 https://www.instagram.com/the_financial_controller/
DISCLAIMER: Links included in this description might be affiliate links. If you happen to purchase a product or service with the links that I provide I may receive a small commission. There is no additional charge to you! Thank you for supporting my channel so I can continue to provide you with free content each week!
All views expressed on my channel are mine alone. Not intended as financial or professional advice
Video Rating: / 5
