Accounting Methods (Part 1)

There are a set of rules followed by accountants to determine how income and expenses are recorded for presentation.   Capital Corp Merchant Banking believes it would be important to briefly discuss the two most popular: (1) cash-based, in this Communiqué;  and (2) accrual-based, in a future Communiqué.

In simple terms, cash-based accounting is where income is presented when it is received, while expenses are documented once they are paid.  Therefore, no matter when a sale takes place or a bill is received, it is not represented by the company until payment is received or made.

It is those instances that explain why cash-based accounting does not conform to Generally Accepted Accounting Principles (GAAP), as well as the scrutiny it faces as a management performance tool because of the lag in revenue recognition because the sale taking place and subsequent payment could be over a long period of time for many companies.

On the other hand, one will also agree that cash-based accounting is a much simpler preparation method to that of accrual-based accounting given the parameters that must be met.

For more information about Capital Corp Merchant Banking, kindly review our website at http://www.capitalcorpmerchantbanking.com.

Respectfully,

Capital Corp Merchant Banking, Inc.