Accounting

Accrual-basis and Cash-basis Accounting
Accrual basis accounting matches revenues with expenses for a particular period of time. Income is recorded when it is earned even if the item is not yet been received and the expenses incurred for the period not have yet paid. Total expenses and revenues are shown in the financial statement whether or not the money was acquired or paid out in a particular period of time. This accounting method gives a more exact picture of the actual cost and revenues of the business.

    On the other hand, cash-basis accounting recognizes the effects of accounting phenomenon when cash is received or exchanged regardless of time events. Cash-basis accounting recordkeeping works primarily in a cash-in, cash out basis. Thus, you only record income when items or revenues are received and expenses accounts are recorded when they are paid. Also, cash-basis accounting does not follow the generally accepted accounting principles (GAAP).

    Politicians prefer a cash basis accounting because they realized that cash value stay throughout the accounting period. In this manner, they can tax their equipment at higher rate since in accrual basis system deals with depreciation of the value equipment, land and other similar items. Also when transactions are recorded on a cash basis, they affect the book of the politicians only once a completed transaction occurred, making it less accurate in the short term of the accounting cycle.