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Cash basis accounting is a very simple form of accounting. When a payment is received...

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Accounting

Cash basis accounting is a very simple form of accounting. When a payment is received for the sale of goods or services, a deposit is made, and the revenue is recorded as of the date of the receipt of funds no matter when the sale was made. Checks are written when funds are available to pay bills, and the expense is recorded as of the check date regardless of when the expense was incurred.

Accrual basis accounting matches revenues to the time period in which they are earned and matches expenses to the time period in which they are incurred. While it is more complex than cash basis accounting, it provides much more information about your business. The accrual basis allows you to track receivables (amounts due from customers on credit sales) and payables (amounts due to vendors on credit purchases).

The Matching Concept states that we must appropriately match expenses with revenues. Please discuss why you think that this is necessary for businesses to do so, other than the fact that it is a requirement of GAAP.

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