Benefits Of Accrual Basis Accounting

The Benefits of Accrual Basis Accounting
a. Accuracy
In cash basis accounting, the company manages to track the cash flow of a business. However it does not accurately reflect the flow of revenue and expenses in and out of a business. On the other hand, accrual accounting will gives companies a truer illustration of their resources and financial responsibilities. This serves as a company advantage because accrual basis accounting could detect the revenues and expenses as they are incurred. This can create a more precise record of the business’s activities. The managers could use this information in order to classify the sales trends that relate to the economic conditions or occurrence in the marketplace.

b. Better picture of the financial

According to World Bank, accrual accounting makes it easy for business managers to plan the future. This is due to the fact that accrual accounting is done in real time where it allows to accounts for all of the expenses and revenues within the right period. Since they do not have to wait for cash to be received to see what their profits are, the managers would be able to create budgets for the company’s expenses. Other than that, they can manage to strategize ways to improve sales or generate more revenue which is essential to inventories, staffing and other areas of

Credit is where the company allows the customers purchase without paying the money at present but liable to be paid in the future. Most businesses depend on credit to survive. Accrual accounting permits companies to record and measure credit, either credit owing as well as owed.

e. Allows managers to better use the company’s resources
As being stated before, the accrual method provides more accurate financial picture that it enables business proprietors or financial managers to manage and use the company’s resources better. The ability to develop the business could be limited if the company is only able to account for cash that has been paid. The company also may put itself in a risky situation if it spends cash that should be allocated for creditors.

f. Compliance with Generally Accepted Accounting Principle (GAAP)
By matching the revenue and expense, accrual accounting allows for financial statements that are relatively unaffected by cash timing of transaction in business negotiations. Basically, this is an attempt to make periodic financial statements more representative of the health of the business, rather than what the checkbook shows. Even though compliance with GAAP is not required for all small business, they will be in the future if the company plans to expand their business to outside