The best country to visit on Conversely, if the expenses of the next accounting period are paid in the current period, they cannot be deducted in the current year; they need to be deducted (matched) with the revenues of the next year. Accrual-basis accounting also requires that revenues should be recorded when earned, regardless of the timing of the cash receipts. There is another form of accounting, called cash-basis accounting, which is usually used by very small businesses. It is based on the actual cash receipt and payment system.
Therefore, under this system, revenue would not be recognized (included) in the income statement until actually collected.
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Similarly only those expenses, which have actually been paid, are recorded as expenses. Because, by choosing the timing of the payment of expenses or collection of revenues, income of the business can be manipulated, GAAP does not recognize the cash method of accounting as an acceptable method of reporting income.
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