Lesson: Converting from Cash Basis to Accrual Basis

In this lesson, the intricacies of converting revenue recognition from cash basis to accrual basis are the main dish, served up by none other than Nick Palazzolo, CPA. Tackling the oft-perplexing topics of accounts receivable, unearned revenue, and the adjustments needed to rectify revenues and expenses for accrual accounting, Nick meticulously walks through the creation of journal entries that bring clarity to this complex process. With practical examples and visual aids, the concept of recognizing income at the time it’s earned, regardless of when the cash is received, is thoroughly explained. Nick further delves into the effects of changes in accounts such as accounts payable (AP) and inventory on reported expenses, showing how these accounts respectively amplify or deflate cost of goods sold and operating expenses on an accrual basis. The emphasis in this lesson is on understanding the underlying journal entries to narrate the financial story of cash to accrual conversion, a cornerstone in mastering the language of accounting.