What is Accrual Accounting?

Share this & earn $10
WolvesAndFinance
Published at : 12 Dec 2020
18483 views
429
12

ZACH DE GREGORIO, CPA
www.WolvesAndFinance.com

In this video we are talking about accrual accounting. What I want is to get you to realize the beauty of this concept. This is one of those key concepts you have to understand if you are going to work in accounting or finance.
Let’s start with the definition. Accrual accounting reports financial statements based on economic events rather than when cash transactions occur. This means that if you issue a financial statement for one year, it should reflect what actually happens in a business during that year rather than simply the cash going in and out of your bank account.
This definition is so important to understand because most financial statements use accrual accounting. For instance, a company whose stock is publicly traded is required to have financial statements based on accrual accounting. The alternative is generate financial statements on a cash-basis, and many small businesses do this, because it is easier. You need to understand why larger companies use accrual accounting, and the benefits.
From a practical standpoint, here is what happens in a business.
1) Every month you close the books (or whatever period you issue financial statements)
2) You receive status updates from your project managers
3) Under accrual accounting, you perform “accruals.” Accruals are adjusting journal entries that adjust revenue and expenses to reflect economic activity rather than cash transactions
4) Publish your accrual financial reports
So you can see here that this is a lot of work, but you are communicating what is actually going on in your business.
So why do we use accrual accounting? Isn’t cash what is really important? After all, you want businesses to generate cash. I have even made another video about the “Statement of Cash Flows” and why it is so important to understand what is happening with your cash. So why do all this extra work. The answer has to do with capital markets. In a mature business, cash is only one element of owner’s equity that is funding your company. You have cash, debt, receivables, stock ownership. What capital markets really care about is productivity. They want to understand revenue and profit each period. They want to know what is actually going on the business. So accrual accounting communicates economic activity each period and reflects that activity in financial statements. What is so powerful is that accrual accounting is what makes capital markets possible. Without accrual accounting, people wouldn’t be able to look at companies and understand their level of productivity.

Neither Zach De Gregorio or Wolves and Finance Inc. shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.
FinanceAccountingCorporate Finance

The Only 4 SMMA Funnels You *Need* {Multiple 6-Figure Agency}

The Only 4 SMMA Funnels You *Need* {Multiple 6-Figure Agency}

59-0708E Be Certain Of God

59-0708E Be Certain Of God

Shams: New Orleans Pelicans are ATTEMPTING to TRADE Jrue Holiday

Shams: New Orleans Pelicans are ATTEMPTING to TRADE Jrue Holiday

Drake - Dreams Money Can Buy

Drake - Dreams Money Can Buy

Life Lessons sharing and respecting others

Life Lessons sharing and respecting others

Chance the Rapper - I Might Need Security (Audio)

Chance the Rapper - I Might Need Security (Audio)

Let's Moj || Moj India || Tiktok virals|| Fun packed Entertainment.

Let's Moj || Moj India || Tiktok virals|| Fun packed Entertainment.

Veggie Town Values Veggie Tales Stories: The Rumor Weed Song

Veggie Town Values Veggie Tales Stories: The Rumor Weed Song

The surprising pattern behind color names around the world

The surprising pattern behind color names around the world

The Superiority of Christ

The Superiority of Christ

Bihar Polls: Huge crowd gather in rallies, SOP's egregiously flouted

Bihar Polls: Huge crowd gather in rallies, SOP's egregiously flouted

In Residence: Carlos Herrera - take a look around the architects Mexican holiday home

In Residence: Carlos Herrera - take a look around the architects Mexican holiday home

Meting out the good and bad

Meting out the good and bad

DRONE CATCHES IMPOSTOR FROM AMONG US AT ABANDONED HOUSE!! (HE CAME AFTER US)

DRONE CATCHES IMPOSTOR FROM AMONG US AT ABANDONED HOUSE!! (HE CAME AFTER US)

There's a Hacker AMONG US and we STOP HIM!  (FGTeeV Family Gameplay)

There's a Hacker AMONG US and we STOP HIM! (FGTeeV Family Gameplay)

Kashmiri Folk | Folks of India part   1 | Pt  Rajendra Prasanna | Bazm e Khas

Kashmiri Folk | Folks of India part 1 | Pt Rajendra Prasanna | Bazm e Khas

IF Excel Function | How to use IF Function with Multiple Conditions?

IF Excel Function | How to use IF Function with Multiple Conditions?

D'Vorah vs. A'Vital

D'Vorah vs. A'Vital

Sarsa - Motyle i ćmy

Sarsa - Motyle i ćmy

Limp Bizkit - Eat You Alive (Official Video)

Limp Bizkit - Eat You Alive (Official Video)

Most Money Wins! I That YouTub3 Family The Adventurers

Most Money Wins! I That YouTub3 Family The Adventurers

Top 10 Foods You NEED to Eat At Breakfast

Top 10 Foods You NEED to Eat At Breakfast

Once You Had Gold-Enya

Once You Had Gold-Enya

Arditi - Imposing Elitism

Arditi - Imposing Elitism

HOW I ILLUSTRATED A CHILDRENS BOOK

HOW I ILLUSTRATED A CHILDRENS BOOK

Danny Macaskill: The Ridge

Danny Macaskill: The Ridge

How to share files to email

How to share files to email

The Story Of Freedom Ship

The Story Of Freedom Ship

The TRUTH About $25 Goodwill Mystery Pallets

The TRUTH About $25 Goodwill Mystery Pallets

European equity markets stumbled on second wave fears - Week 42 (2020)

European equity markets stumbled on second wave fears - Week 42 (2020)

Erich's boyfriend bothered by daring scenes?

Erich's boyfriend bothered by daring scenes?

Minecraft Speedrun World Record 1.15

Minecraft Speedrun World Record 1.15

getting crafty | daily vlog | 17.12.20

getting crafty | daily vlog | 17.12.20

Kalen and His Producer Go Through a Haunted House

Kalen and His Producer Go Through a Haunted House

Wilbur Soot - Your New Boyfriend (OFFICIAL VIDEO)| FIRST TIME REACTION

Wilbur Soot - Your New Boyfriend (OFFICIAL VIDEO)| FIRST TIME REACTION

AQW- NEW UPDATES, Sentinel Class Rework, New BrightShadow boss drops And new 10k Collection Chest

AQW- NEW UPDATES, Sentinel Class Rework, New BrightShadow boss drops And new 10k Collection Chest

How Uplive Can Be Utilized For Commercial Ads

How Uplive Can Be Utilized For Commercial Ads

The Great Gatsby Part 14: Borne Back Ceaselessly

The Great Gatsby Part 14: Borne Back Ceaselessly

大象體操 Elephant Gym - 凝視 Gaze at Blue【Official Music Video】

大象體操 Elephant Gym - 凝視 Gaze at Blue【Official Music Video】

Giving a Nebulizer Treatment

Giving a Nebulizer Treatment

Approaching The Unknown - Official Trailer

Approaching The Unknown - Official Trailer

David Guetta & Sia - Let's Love (Official Video)

David Guetta & Sia - Let's Love (Official Video)

Encumbered vs. unencumbered intellectual property | TTCO

Encumbered vs. unencumbered intellectual property | TTCO

Progressive Techno Music Mix

Progressive Techno Music Mix

Data Science: Reality vs Expectations ($100k+ Starting Salary 2018)

Data Science: Reality vs Expectations ($100k+ Starting Salary 2018)

【FELT】04. Lies in Reality(FELT-011 Abyss nova)[Audio Archives]

【FELT】04. Lies in Reality(FELT-011 Abyss nova)[Audio Archives]

TY Bello , Sinach and George - Peace  (Spontaneous Worship)

TY Bello , Sinach and George - Peace (Spontaneous Worship)

MICHAEL BEATS JIMMY PANYUK | GTA 5 PAKISTAN

MICHAEL BEATS JIMMY PANYUK | GTA 5 PAKISTAN

Chapter 1 - What is a Bog and Why Should We Conserve it?

Chapter 1 - What is a Bog and Why Should We Conserve it?