Reference no: EM132811077

1. 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" (Investopedia, 2016). With accrual accounting revenue is not recognized at the time of a purchase it will be recognized the next month or the next billing cycle, (accrual first cash later). Accruals are listed on the balance sheet as account receivable, this is cash not yet received (Managerial accounting for managers, 2014). Accruals are also amounts unaccounted for but still owed at the end of a period or at the end of year. If the amount is not known estimates need to be made and then added to the expenses in order for this to show a true picture in the Profit and Loss account.

In contrast to cash flow statements, cash budgets provide much more timely information regarding cash inflows and outflows. For example, whereas cash flow statements are often prepared on a monthly, quarterly, or annual basis, cash budgets are often prepared on a daily, weekly, or monthly basis. Borrowed funds can mean a leg up for companies and for investors, Bottom line it is better to borrow money rather than give of equity. Equity costs you a portion of your business that you cannot get back.

2. Accrual accounting is different because it shows the changes in the economy of a company regardless of when transactions occur. It recognizes this by matching the revenue to expenses when a transaction actually takes place. This is different because it's usually taken when payments are actually made or received.

With Accrual accounting, you will still have amounts that aren't accounted for (hence the term unaccounted). These amounts that aren't accounted for yet have to be added or subtracted later.

With cash flow statements you are able to see a company's cash transactions within a specific period of time, whereas the income statements actually show the company's performance over a period of time.