What is the accrual basis of Accounting?
Under the accrual basis of accounting, revenues are reported on the income statement when they are earned. (Under the cash basis of accounting, revenues are reported on the income statement when the cash is received.) Under the accrual basis of accounting, expenses are matched with the related revenues and/or are reported when the expense occurs, not when the cash is paid. The result of accrual accounting is an income statement that better measures the profitability of a company during a specific time period. The Balance Sheet and Income Statement are connected. I mentioned that adjusting entries almost always involve both a balance sheet account and an income statement account. (For example, the cost of supplies that are no longer on hand is moved from the balance sheet to supplies expense on the income statement. Insurance premiums that are no longer prepaid are moved from the balance sheet to insurance expense on the income statement.) The first accounting course teaches us that the
