RSM219H1 Study Guide - Final Guide: Accrual
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RSM219H1 Full Course Notes
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The two main methods of accounting are accrual and cash accounting. Accrual accounting - revenues are recognized when they are earned and expenses are recognized when they are incurred. Money does not have to be exchanged in order to record revenues and or expenses. Cash accounting - revenues are recognized when cash is received for the goods or services and expenses are recognized when cash is paid for the expenses. Money must be exchanged in order to record the revenue and or expense. How to increase profits under accrual accounting system. By paying for expenses which will be incurred in the next accounting period, we can overstate our profit. Under accrual accounting, expenses are recognized only when the goods or services are delivered. Even though we are paying for those expenses in the current period, the expenses must be recorded in the next period, since it is during the next period when the expenses are incurred.