From the course: Accounting Foundations: Understanding the GAAP (Generally Accepted Accounting Principles)

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The accrual principle

The accrual principle

From the course: Accounting Foundations: Understanding the GAAP (Generally Accepted Accounting Principles)

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The accrual principle

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- Who doesn't love cash? I sure do, so much that I named my dog Cashton. He's an AKC golden retriever and cost a ton of cash, hence Cashton. If US GAAP allowed us to use cash or accrual basis accounting, many of us would love to use cash basis accounting, because it's so easy and intuitive. Unfortunately, if we were allowed to choose between cash and accrual basis accounting, it would be very difficult to compare financial statements if they weren't prepared under just one of the two approaches, that is, without a lot of reconciliation. So U.S. GAAP is very clear, publicly-traded companies must use accrual basis accounting. What does this mean? If we were applying cash basis accounting, we would only be allowed to record revenue when we received the cash. Accrual basis accounting is, for the most part, completely unconcerned with when cash is exchanged. Accrual basis accounting is concerned with recording a…

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