Chapter 3, Problem 3.2SE

To determine

Cash basis Versus Accrual basis of accounting

The main difference between the cash basis accounting and accrual basis accounting is, under cash basis of accounting, revenue earned is recognized and recorded only when cash is received, similarly expenses incurred is recognized and recorded only when it is paid in cash. On the other hand, under accrual basis accounting, revenue earned is recognized and recorded, only when goods are delivered or services are performed irrespective of the cash being exchanged, similarly expenses are recognized and recorded only when expenses are incurred, irrespective of cash being paid.

The amount of service revenue Company P should record for the year under cash basis and accrual basis.