Discuss the importance of reporting transactions in the correct period for an accrual based business.

Importance of reporting transactions in the correct period for an accrual based business is as follows:

1. Improving your Financial Picture

Accrual accounting easily allows the business owner to see at a glance if the company is profitable, where the profit is coming from, and where expenses are going. Accrual accounting also matches revenues with the expenses the company incurred to produce it.

2. Staying GAAP Compliant

In the United States, GAAP (generally accepted accounting principles) is considered the industry standard for preparing financial statements. In fact, companies in the United States with $5 million dollars in annual sales or $1 million dollars in annual inventory sales are legally required to use the accrual accounting method as part of GAAP in order to report their financial information and for income tax preparation. Meeting GAAP allows a company's financial picture to be easily accessed by investors and other financial institutions.

3. Improving Accuracy

Accrual accounting gives companies a truer depiction of their resources and financial responsibilities. This serves as a company advantage because according to Inc.com, it allows businesses to properly manage the ebb and flow of financial activity. Income and debts can be more accurately assessed with accrual accounting.

4. Planning for growth

Cash accounting is an "after the fact" accounting style, while accrual accounting is done in real time. According to World Bank, accrual accounting makes it easy for business managers to plan the future. Since they do not have to wait for cash to be received to see what their profits are, professionals can strategize ways to improve sales or generate more revenue as they spot financial plateaus. This keeps a company progressive, which is crucial to viability.

5. Obtaining Credit

In order to expand, or even to survive, most businesses will depend on credit. Accrual accounting allows companies to record and measure credit - both credit owing as well as owed.