Question

Why must one understand accrual basis accounting and how does this process play a huge role in the adjusting entry process?

Answer 1

Introduction

Accrual is a method of accounting in which transactions are recorded as and when they occur.Revenue is recorded when it is earned and expenseis recorded when it is incurred.

Undertsand accrual basis accounting

One must understand accrual basis of accounting as it matched revenue with related expenes.Auditors certify the financial statements only on basis of accrual accounting.Moreover accrual basis of accounting provides accurate picture of the cash flows for the business.The Generally Accepted Accounting Principles prefers accrual accounting over cash-basis accounting.

Role of Accrual accounting in adjusting entry process

Adjustin entries are the entries that are recorded at the and of the financial year to record any unrecognized income or expenses.Adjusting entries convert cash transactions into the accrual accounting method.