RLB Blog

Many people are unaware that there is more than one way to prepare financial records. There are two methods: cash accounting which involves recording revenue and expenses at the time they are paid, and accrual accounting which records revenue and expenses in the period that services are applicable to. Although cash accounting can be easier than accrual accounting, it does not provide an accurate picture of a corporation’s annual revenue and expenses. Accrual accounting not only gives a more accurate picture of the corporation’s revenue, expenses, assets, and liabilities, it is also required under the Generally Accepted Accounting Principles (GAAP). This means that auditors only audit based on the accrual method, therefore, if cash accounting was used to prepare the financial records, the books must be updated to reflect accrual accounting before having an audit completed.