Wednesday, April 22, 2009

Accounting principle- Accrual Basis

Figures generated / kept in accordance to accounting principle is prepared on accrual basis. For instance, accountant record the provision for warranty ( based on estimate) even though there's no actual cash/ economic outflow yet.

In finance, cash basis figures are more relatively more valuable , as compared to accrual basis ( advocated by accounting principle), in order to value a business.

What do you think ? You prefer a an accrual method or cash method in valuing a business?

10 comments:

Anonymous said...

I am a regular reader of ur blog.....Accrual Basis accounting is better for a firm having large business. Because Under cash basis, the revenue and expense is recorded only when they actually take place (if there is a cash outflow or inflow literally)But under Accrual Basis, even if revenue is earned and though not recived, it can be recorded, and the same with Expense.......Hence Accrual basis is suitable........This will also help assess how much revenue or expense the company has earned or spent at a particular month.

Kindly correct me if am wrong.

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