Cash vs Accrual Accounting

This video illustrates the difference between cash and accrual accounting. Cash accounting requires that economic events be recognized when cash changes hands. Accrual accounting, on the other hand, requires that economic events be recognized when they occur, regardless of when they happen to be settled in cash.
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[@MyFinancialFocus]

I love seeing the relationship between accrual accounting on the income statement and cash accounting on the cash flow statement. Super insightful.

[@hockeyme3113]

I have a test tomorrow and I my so called teacher just tells us to memorize stuff. I appreciate you walking us through the logic behind it.

[@financialcounting5603]

I like your examples, especially your bicycle example. I'd like to add on to what you said at the end of the video. Financial statements that use cash accounting gives meaningless information to investors. The goal of GAAP is to give investors useful information to allow investors to estimate future earnings. Accrual accounting is the way to go!

[@Dennis-gm8qd]

you make accounting easy to understand... keep the good work!

[@Edspira]

Thanks Dennis!

[@michellesanchez3398]

dude i learned this in 8 mins and it took my professor 2 hours and i still didnt get him

[@Edspira]

Awesome. Happy to help!

[@allangozun870]

espresso (expresso) making bicycle kills me

[@TheFedericohiguain2]

not only that, it has a TV screen haha I need a bike like that lol

[@karkulajda]

Well this is a little bit complicated I believe. It depends on the shipping point. The FOB- ok, accrued. The destination...not accrued if delivered in January

[@alexsilvacorp]

I watch these videos and still think the retail scenario is overlooked. Most costs in a retail environment are on an account and not cash on delivery, therefore the retailer will receive the goods today and pay in 14 days. Also, most sales nowadays are done with debit/credit cards which does not hit the retailer's account at the time of the sale. Even if you own a candy store, the accrual method is a better representation of the health of the business and will provide a much better P&L statement.

[@jamesgomez5774]

What a great explanation! Thanks for the video you got straight to the point

[@Edspira]

Sure thing!

[@MegaSumit]

Thank you sir your videos are awesome and they help me lot for my studies you are awesome

[@Edspira]

Thank you!

[@zamf]

The benefit of Cash basis is the taxes. In your example, you can defer the tax on the $1M by 1 year if you report to the government using Cash basis of accounting. In accrual basis you have to pay the taxes for the $1M even though you didn't receive any money, yet. As far as I know small businesses tend to report to investors using the accrual method and to the government using the cash method of accounting to get the tax deferring benefit.

[@vanessabraud4832]

I get it NOW!

[@Edspira]

Awesome!

[@youtubestuff1317]

THIS HELPS RIDICULOUSLY THX

[@Edspira]

No problem. Best of luck to you!

[@bharatchaurasiya8616]

YOU ARE VIDEO HELP FULL BANKS JOB VERY VIDEO WATCHING OUR THANKS SO MUCH

[@Edspira]

Fantastic. Best of luck to you in banking!

[@aliseosmun5882]

can you guys please include necessary information required to cite this as a source, such as the speakers name, thank you!!

[@Edspira]

The video was produced by Michael McLaughlin on 7/9/2013 in St. Louis, Missouri, USA. (www.MichaelMcLaughlin.com)

[@spunky181]

I understand but in the first example, you still have to pay upfront for the candy, to begin with,​ right?

[@Edspira]

Let's assume that you purchased inventory and you promised to pay for it later. With the cash accounting, you only record the transaction once the bill is paid. For accrual accounting, you immediately record the inventory and you'd increase accounts payable.

[@nightthemare4742]

Amazing!

[@Edspira]

Thank you!

[@williamritter1066]

I think using the term “order” creates some confusion you would not recognize the sale until the bikes were completed and delivered?

[@anthonykajfasz2524]

Do you use depreciation in cash basis, if a machine is bought? Would the machine hit PP&E and the depreciation hit under EBITDA, or would the purchase just be an expense on the P&L?

[@gsnctb3532]

Very helpful

[@Edspira]

Thanks!

[@rudraprasadpradhan6932]

you are a fucking genius sir

[@Edspira]

Thank you!

[@JosueRodriguez-gs8vs]

epic battle lol

[@shakoe1943]

THANK YOU !!!

[@MrIshaanchopra]

Fab

[@shaunchopra9763]

thank u so fucking much

[@sipefan1]

Sorry am I the only one who thinks this isn't that helpful?

[@dilshoddubai7197]

Lisa Knisely yes YOU are the ONLY one

[@ThisNameWasTaken0]

I thought it was helpful. What didn't you get from this video? Perhaps I can help you out.

[@sabaideeworld]

I thought it was helpful. Think about your paycheck. You probably get paid every 2 weeks? Why don't you get paid every day for your work? Because there isn't enough cash to pay everyone that day. So the company accrues your wages, keeps track of your weeks work, and then pays you. It's the same kind of idea.