Financial Accounting/Cash vs. Accrual

Introduction

In the following section, we will learn the differences between cash and accrual accounting and why we will be using accrual accounting going forward.

Required readings

• Cash accounting
• Accrual accounting
• Khan Academy cash accounting
• Khan Academy accrual accounting
• Khan Academy cash vs. accrual

Summary

As you can see, accrual accounting is much more representative of "economic activity" than cash accounting is and is the reason why the accrual method is used in practice. Unfortunately it is significantly more complicated and, as we will see in later courses, can get dramatically more complicated when multi-year contracts including expense matching takes place.

Problems

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Solutions

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