What is the advantage of using accrual accounting model of revenue recognition ?
1 Answer(s)
Binny
Accrual accounting represents the operations of a business more accurately.
In cash accounting, you will categorize all cash as revenue immediately even if it takes 1 year to deliver the product. However, in reality the expenses to deliver the product is spread over 12 months and hence the revenue also should be spread over 12 months. Categorizing all cash as revenue on day 1 is misleading in such a scenario.
Aug 31 2013 10:17 AM
In cash accounting, you will categorize all cash as revenue immediately even if it takes 1 year to deliver the product. However, in reality the expenses to deliver the product is spread over 12 months and hence the revenue also should be spread over 12 months. Categorizing all cash as revenue on day 1 is misleading in such a scenario.