Understanding Accrual and Cash Basis Accounting

The video tutorial discusses two accounting methods: accrual and cash basis. Accrual accounting records revenues and expenses when they occur, regardless of cash flow, and is required by GAP for publicly traded companies. Cash basis accounting records transactions when cash is exchanged and is often used by smaller businesses. The video emphasizes the importance of understanding these methods for making adjustments in accounting.

What is the primary characteristic of accrual basis accounting?

• Recording transactions when cash is exchanged

• Recording revenues and expenses when they occur

• Recording only cash transactions

• Recording transactions at the end of the fiscal year

Why is accrual basis accounting required for publicly traded companies?

• It is easier for small businesses

• It allows for cash flow tracking

• It is mandated by GAAP

• It simplifies bookkeeping

How does cash basis accounting differ from accrual basis accounting?

• It is used by publicly traded companies

• It matches expenses with revenues

• It is required by GAAP

• It records transactions based on cash flow

Which accounting method is not compliant with GAAP?

• Accrual basis

• Both accrual and cash basis

• Neither accrual nor cash basis

• Cash basis

For which type of business is cash basis accounting more suitable?

• International companies

• Publicly traded companies

• Large corporations

• Small businesses