Accrual Balance And Cash Flow Statement

986 WordsJun 6, 20164 Pages
Question 1 I would explain these methods (accrual balance and cash flow statement), to Irene in this way: The most of the time the business bookkeeping system use two methods: the accrual basis or the cash basis (Gibson 2008). On one hand, “Accrual accounting " is any record of revenues or expenditures when there is not a cash transaction. The principle to apply this method is the “matching principle”( Berman& Knight, 2013), basically is the report of an expense or income statement in the equivalent period that is by matching revenues to expenses. It measures the performance when cash transactions occur. This method provides a precise picture of the company statement, but by his complexity is more expensive to apply. In addition, the Enterprise using inventory, as well as, sales or credit must to use this method. Furthermore, the financial condition is affected by transaction as credits or projects and, these statements have to be reflected in the accounting balance. Moreover, Accrual accounting in opposite to the cash flow (that will be explained on the next item) reflects facts not probabilities, as an instance is the sales of a product, when a customer receive a product by the credit system accrual accounting reflects the transaction as a fact in the account “ accounts receivable” , making an increase on the seller’s revenue. As said above, accrual accounting is the most precise representation of the financial results and the enterprise financial position, being
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