Comparing Accrual vs. Cash Basis Accounting:
Accrual and cash basis accounting are two primary methods used to record financial transactions, each with its own advantages and limitations. Compare and contrast these two methods, detailing the key differences in recognizing revenue and expenses. Explain how accrual accounting matches revenue with expenses incurred during the same accounting period, providing a more accurate depiction of financial performance over time. In contrast, discuss how cash basis accounting records transactions only when cash is exchanged, potentially leading to distortions in financial statements, especially in the case of long-term projects or contracts. Provide examples to illustrate the application of both methods in various business scenarios.