Adjusting the Accounts

Answer

Under the Cash Basis statements, companies record revenue when they receive cash. They record an expense when they pay out cash. The cash basis seems appealing due to its simplicity, but it often produces misleading financial statements. It fails to record revenues when companies performed services but not received cash. For this reason expenses does not match with revenues.

Under the Accrual basis financial statements, companies record transactions that change a company's financial statements in the periods in which the events occur. It determines net income that means companies recognize revenues when they performed the services(rather than when they receive cash) and the expenses(rather than when they pay cash) for a particular period. So that accrual basis financial statements provide more usual information than cash-basis statements

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