Fundamental Accounting Principles
Fundamental Accounting Principles
23rd Edition
ISBN: 9781259536359
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
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Chapter 3, Problem 1DQ
To determine

Concept Introduction: Accounting is an important aspect for any business. Without proper accounting, the business owners would not be able to identify the incomes earned or the losses incurred. They will not be able to know whether they are earning something or not. So, accounting is the essence of the business and without accounting the business has no sense.

To discuss: The difference between cash basis and accrual basis of accounting.

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There are two ways of recording transactions under accounting. One is cash basis and another is accrual basis of accounting.

Under cash basis of accounting, the transactions are recorded as soon as cash element is involved. Under the accrual basis of accounting, transactions are recorded upon the happening of an event irrespective of the fact that whether the case is involved in the transaction or not.

The main difference between the two methods is the timing when the transactions are recorded. Under cash method of accounting, income and expenses are recorded when the cash has been received or paid. On the other hand, under accrual method of accounting, the transactions are recorded on the happening of the event even if the cash has not been received or paid. The most acceptable method of accounting is the accrual method of accounting.

For example, if the goods are purchased in cash, then the transaction will be recorded under both the methods. But if the goods are purchased on credit, then the transaction will be recorded under the accrual method of accounting but will not be recorded under the cash method of accounting, since cash is not involved.

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Chapter 3 Solutions

Fundamental Accounting Principles

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