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Differentiating Accrual and Cash Basis in Financial Statements

December 10, 2023

What do the terms "accrual basis" and "cash basis" mean in financial statements?

Accrual basis and cash basis are accounting methods determining when revenues and expenses are recognized in financial statements. Accrual basis records transactions when they occur, irrespective of cash flow. In contrast, cash basis recognizes transactions only when cash changes hands. Accrual basis offers a more accurate depiction of a company's financial position and performance, while cash basis provides a simpler view of actual cash inflows and outflows.

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