Recognition of Revenues and Unadjusted Trial Balance

ACCOUNT

TABLE OF CONTENTS
REPORT..........................................................................................................................................1
1. Recognition of Revenues.........................................................................................................1
2. Unadjusted Trial Balance ........................................................................................................1
3. Example of companies operating over accrual or cash accounting basis................................3
REFERENCES................................................................................................................................5

REPORT
1. Recognition of Revenues
Difference between cash accounting and accrual accounting
Both the accounting methods are used for recording the business transactions. Main
difference between the accounting methods is of timing transactions being recorded. Results of
accounting methods give same results over time.
In accrual basis of accounting revenues and transactions are recorded as and when they
are earned where expenses are recorded in the records when they are made.
In cash accounting revenues and transactions are recorded on receipt of cash from the
customers. Expenses of the business are recorded at the time cash is paid to the employees and
suppliers.
Example of cash accounting and accrual accounting.
Expense Recognition
Company X buys supplies of office in march and make payment in April. In cash
accounting purchase is recognised when the bill is paid by company in April (Eulner &
Waldbauer, (2018). On the other in accrual accounting company will recognise purchases in
march when invoice from suppliers is received.
Revenue Recognition
Company X sold product in August to a customer. Invoice is paid by the customer in
September. On cash method it recognises sales in September on receipt of cash. On the other in
accrual accounting sales is recognised in August when the invoice is issued.
Direct experience
At the time of working as accounting assistant company was following accrual basis of
accounting. It received a big order for particular type of product which was to be completed
within six months. Following accrual basis it recorded the revenues in books reflecting high
profitable state. After few days order was cancelled and this made the company to de-recognised
the revenues recorded. Cash accounting proves to be beneficial as it records the transactions
when the revenue are actually earned in such situations.
2. Unadjusted Trial Balance
TRIAL BALANCE
S.No. Account Heads Element Debit Credit
1