What is the difference between the cash basis and accrual basis of accounting? Which does GAAP accounting require, and why?

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Reid WolffLv2

30 Sep 2019

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Statement of Financial Accounting Concepts No. 1 states that oneof the objectives of financial reporting is to help âcurrent andpotential investors and creditors (and other users) in assessingthe amounts, timing, and uncertainty of future cash flows such asdividends or interest payments.â Generally Accepted AccountingPrinciples (GAAP) require the use of the accrual basis ofaccounting. Explain the difference between the accrual basis andthe cash basis of accounting and why GAAP requires the accrualbasis.

Please include a scholarly reference.

Which of the following statements is true of accrual basis accounting?

a. Accrual basis accounting records revenue only when cash is received.

b. Accrual basis accounting is required by GAAP.

c. Accrual basis accounting always results in greater net income than cash basis accounting.

d. Accrual basis accounting records expenses only when cash has been paid to them.