Chapter 4

Choosing an Accounting Method

IN THIS CHAPTER

check Getting clear on the cash and accrual methods of accounting

check Walking through other types of accounting

check Finding out about FASB’s conceptual framework

To perform accounting tasks, you must choose to follow either of two methods: cash basis or accrual basis. In addition, you can approach accounting in several ways, depending on the nature of your business and the audience that reads your financial statements. For example, businesses use accounting to track transactions and keep investors informed; and their managers use accounting to make better decisions. Not-for-profit organizations primarily use accounting to help with budgeting and grant proposals. Accountants serving government agencies must also focus on budgeting while providing citizens and government agencies and officials with the information they need.

This chapter explains the differences between cash and accrual basis accounting, describes the various ways accounting is used, and introduces you to the Financial Accounting Standards Board’s Statements of Financial Accounting Concepts. (If you aren’t familiar with the FASB, check out Book 4, Chapter 1.) This chapter ...

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