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Business 2 Lesson 25: Cash vs Accrual Accounting

Accounting in business is very crucial because it keeps your financial records, which benefits you.

Accounting keeps record of how much you’re spending on your business (expenses) and how much income you are getting from your business (profits). It also determines your future business plans, and helps you avoid tax report and gives you larger sales tax returns. Most businessmen do cash accounting. This is when you record your expenses after you’ve fully paid for them and record your profits after you’ve received them. Although cash accounting may seem simple and ease of use, it isn’t the best approach to accounting. Why? Because it can cause problems concerning the the financial value of your business.

A more sufficient way is accrual accounting. This is the method of accounting that is demanded by the GAAP and records when you sold something or bought something concerning the business, which may be before you actually fully pay for it in the case of credit cards and loans. Accrual accounting requires that you keep more track of your business money, but it will aid you in making future plans for the business based on business performance. Accounting is also very important because you need to focus on getting more customers while taking care of existing customers. For cash you can have a cash flow charge that you have to balance. If you prepare a worksheet for the cash flow then it requires you to look ahead and forecast money coming in and out. You need to stay on top of financial results every month that way it makes things easier for when you go to do your taxes and you aren’t confused about what you spent (that’s an absolute must)!

That would be all for this essay, thank you for tuning in and taking your time to read these. Have an amazing rest of your day!

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