There are general rules used to regulate the accounting field, which these rules refer to as basic accounting principles and guidelines. Commercial accounting rules are used to gain commercial results of a single entity whether for a profit or a loss in a given period. Commercial accounting can only be recorded when credit or cash transactions are performed. Regardless of service was paid or not paid the transaction must be recorded on that specific date.
The General accepted accounting principle (GAAP) follow three important rules. The three rules that GAAP follows are the basic accounting principles and guidelines, the detailed rules and standards issued by Financial Accounting Standards Board (FASB) and Accounting Principles Board (APB), and the third rule is the general accepted industry practices. (site: Acct Coach). In the United States companies that are publicly traded are to follow GAAP. GAAP mandates that companies publicly release their financial records.
Cash-basis is defined as accounting basis when a business receives cash for service or expenses out cash when purchasing supplies or other journal line items and is recorded immediately. Accrual-basis is defined as companies’ financial transactions that may be recorded on the day of the event or time periods that occur regardless if expenses or revenues have transacted. (Kimmel, 2009). Cash-basis is not as complex as Accrual-basis system and is why most small business owners would utilize the Cash-basis system. Large corporations require using the accrual basis that revenues exceed five million or have large quantity of inventory. With large organization most will have to rely on the two balance sheets, accounts payable, and accounts receivable. The two balance sheets would have to report revenues when earned and expenses as they are acquired.
In conclusion, the difference between Cash-Basis and Accrual Basis accounting is when the revenues and expenses are recorded by the business. With the...