• Accrual or Cash Basis
  • Accrual or Cash Basis
    Accrual or Cash Basis
    Accrual or Cash Basis

    In order to implement any type of accounting system, a decision must be made to utilize either a cash or accrual basis for your books.

    Accrual Basis
    With an accrual basis, revenue and expenses are reported at the time they are earned or incurred.
    Cash Basis
    Under a cash basis, revenue is reported when cash is received and, correspondingly, expenses are reported when cash is paid.

    To illustrate the difference between the two, let us assume that on January 1st Joe the plumber provided a service that totaled $400. The customer did not have the money that day and sent Joe a check on January 15th. In an accrual based system, the revenue for the job would be recorded that same day, regardless of whether or not Joe received payment from the customer. Using the same example in a cash based system, a record of the transaction would not be entered into the books until the payment was received on January 15th.

    When people are asked about accounting, many thoughts turn to numbers and formulas found in spreadsheets, and that certainly is part of the profession. The important part, especially to small business owners, is to understand how the numbers make up the big picture for your business. The information provided in this book will help you select and implement an appropriate accounting system based on the goals and objectives of your real estate agent business.

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