Cash vs Accrual Accounting

Question 1

Cash Accounting

Answer 1

• Revenues are reported on the income statement in the period in which the cash is received from customers.
• Expenses are reported on the income statement when the cash is paid out.

Question 2

Accrual Accounting

Answer 2

• Revenues are reported on the income statement when they are earned - which often occurs before the cash is received from the customers.
• Expenses are reported on the income statement in the period when they occur or when they expire
  —which is often in a period different from when the payment is made.