Please explain the difference on how revenues are recorded into the books of a cash basis organization and how on an accrual based organization. Please explain the steps you would take to convert a cash-bash organization’s financial statements to accrual basis.

cdnk5

Cash based revenue is recorded when cash is actually received. In an accrual system it is recorded when earned, which could be before you are actually paid. When to actually recognize it (when it is earned) can vary depending on the exact situation/nature of the good/service.

In cash based there are no accruals for AP, AR, prepaids, etc. Nothing is recorded until the cash has changed hands.

To convert:
You would need to recognize any revenue that has been earned, even if you didnt get payment. (For example if you deliverd a shipment and invoiced it but havent yet been paid. This would be recorded as revenue)

You will also need to set up payables for expenses incurred that you have not actually paid for.

Hope that helps a little.

CaptainForest

cdnk5 brings up very good and valid points.

My accounting professor says that if it wasn't for the accrural system, there would be no need for all us accountants!