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Definition: Cash basis accounting is an accounting system that recognizes and records income and expenses as they are paid in cash. GAAP dictates that businesses cannot use the cash basis of accounting.When are businesses required to use accrual accounting?
Accrual accounting is based on the idea of matching revenues with expenses. In business, many times these occur simultaneously, but the cash transaction is not always completed immediately. Businesses with inventory are almost always required to use the accrual accounting method and are a great example to illustrate how it works.When does the IRS require an accrual basis?
Tax returns based on the accrual basis require you to report income and expenses as they are incurred, no matter when you receive the money. For example, if you sell a product on Dec. 24, Year 1, and receive payment on Jan. 5, Year 2, you would report both the income and the expense in Year 1 because that is when they were incurred.What is the accrual method of accounting?
What is 'Accrual Accounting'. Accrual accounting is an accounting method that measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur.