The Daily Technical #45: How does accrual accounting differ from cash-basis accounting?

Good morning. Welcome to the 45th edition of The Daily Technical. You’re here for one reason so let’s dive in.

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OVERVIEW OF YESTERDAY’S QUESTION
What are the typical line items you might find on the balance sheet?

Break it down logically into three main parts: Assets, Liabilities, and Shareholders' Equity.

Start with the Assets section, distinguishing between Current and Non-Current Assets. List Current Assets like Cash, Marketable Securities, Accounts Receivable, Inventories, and Prepaid Expenses by their liquidity. Mention Non-Current Assets like PP&E, Intangible Assets, and Goodwill.

Next, address Liabilities, starting with Current Liabilities such as Accounts Payable, Accrued Expenses, and Short-Term Debt. Then move to Non-Current Liabilities including Deferred Revenue, Deferred Taxes, Long-Term Debt, and Lease Obligations.

Finally, explain Shareholders' Equity components. Discuss Common Stock, APIC, Preferred Stock, Treasury Stock, Retained Earnings, and Other Comprehensive Income.

Common Mistakes

1. Mixing Current and Non-Current Items: Pay close attention to the defined criteria for these categories and apply them correctly.

Key Takeaways / TLDR

• Split your answer up into Assets, Liabilities, and Shareholder’s Equity.

• For Assets and Liabilities, include current and non-current line items.

• Explain each part with a brief, clear definition and examples when necessary.

TODAY’S QUESTION
How does accrual accounting differ from cash-basis accounting?

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THAT’S A WRAP
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The HirePrep Team