Distinguish between Cash and Accrual basis of accounting.
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The cash basis of accounting records revenues when cash is received and expenses when cash is paid out.
The accrual basis of accounting records revenues when they are earned, and expenses when resources are used....
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Accrual accounting means revenue and expenses are recognized and recorded when they occur, while cash basis accounting means these line items aren't documented until cash exchanges hands. ... The accrual method is the most commonly used method, especially by publicly-traded companies as it smooths out earnings over time.
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