Why Accrual Accounting Is Preferable to Cash Accounting

Why Accrual Accounting Is Preferable to Cash AccountingThis week’s post and full article are by Michael K. Menerey, Partner, CFO Edge, LLC.

While executives at Los Angeles and Southern California businesses are aware of both cash basis accounting (“cash accounting”) and accrual basis accounting (“accrual accounting”), many do not understand why accrual accounting is preferable to cash accounting.

Because it is generally simpler to process, cash accounting is frequently preferred over accrual accounting.

But cash basis financial statements are not compliant with generally accepted accounting principles (GAAP), and accrual accounting is more beneficial than cash accounting in almost every business situation without regard to the size of the business or its stage of growth.

Reviewed in this article…

Why Accrual Accounting Is Preferable to Cash Accounting

…are primary differences between cash accounting and accrual accounting, as well as significant advantages of using accrual accounting.

The more accurate depiction of a company’s financial position along with lenders and investors wanting to see GAAP-compliant financial statements illustrate the greater value delivered by accrual accounting.

Executives considering this important shift to accrual accounting can benefit from talking with a CFO services professional who can provide high-level guidance along with training to your financial team members.

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