Feb 12, | ACCT
What types of documents are prepared by business organization using financial and managerial accounting?Discuss the differences between financial and managerial accounting.
Feb 12, | ACCT
Why the text bellow can be related to “Matching Principle”?
The crucial difference between these two accounts is when the entry or exit of a value is recorded. The record is only made when the amount moves on a cash basis. In the accrual account, however, it is necessary to register regardless of the period it will take for it to materialize.
The significant point is when these values ??will appear in the accounting and how they will be considered whether it is making a prediction for the future or when they happen.
The cash basis is based on making financial records when they happen. In the case of purchases made in installments for 30 and 60 days, the output of the value would only be recorded when the payment of each installment was made. The same goes for payments for customer purchases.
In the case of a customer who bought a product by making a down payment and paid off the remainder within 30 days, the down payment would be recorded first, and the remainder included at the time of payment.
The cash basis considers that transactions only exist when they are carried out, not including amounts that will still be received or paid in the equation.
The accrual basis is considered the official one for income tax, legislation, and accounting records. It can be used by companies of all sizes, more commonly in medium and large corporations.
Accounting records on the accrual basis must be made on the date they occur, that is, on the generating factor date, regardless of the time they will take to be paid.
To make it more straightforward, observe the following example: imagine that company X purchased inputs from a supplier and negotiated the payment in two installments, with the first installment for 30 days and the second for 60 days.
Although the amount only comes out of the cash of company X in 30 and 60 days after the purchase, the total amount must be registered on the date of issuance of the note. When the installments are paid, making a new record will not be necessary, as the total amount has already been deducted from the accounting.
The same goes for sales; if company X has sold a product to a customer who has made a down payment and will pay the remainder only after 30 days, it must record the total amount on the date of the deal. It does not matter that the total value of the sale is not yet part of the company’s equity. It must be recorded as such.