Accounting

Paper Summary:

This paper discusses the two large categories of accounting methods that companies tend to use, cash and accrual. The paper presents a definition of both concepts, as well as a comparison between the two methods. The paper offers general recommendations about when it is advisable to use one or the other. The paper contends that, nowadays, most companies use the accrual method.

From the Paper:

"The accrual methodology, on the other hand, "records income when the sale occurs, whether it be the delivery of a product or the rendering of a service on your part, regardless of when you get paid" . The expenses are similarly recorded when the liability is contracted. For example, in December, we buy equipment worth $20,000, payable over a period of six months. With the accrual accounting method, the respective expense is recorded in the month it was produced and not in every six months to follow during which the payments are made. One of the problems that may arrive when using the accrual method refers to the fact that sometimes the exact moment when the transaction or the liability was contracted is not known."

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