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Calculating net income using accrual accounting is a method of determining a company’s financial performance by recognizing revenue and expenses when they are earned or incurred, regardless of when cash is received or paid. For instance, if a company sells a product on credit, the revenue is recorded when the sale is made, even though the cash may not be received until a later date. Conversely, if the company purchases supplies on account, the expense is recorded when the supplies are received, even though the cash may not be paid until a later date.

Accrual accounting is important because it provides a more accurate picture of a company’s financial performance than cash basis accounting. This is because accrual accounting takes into account all of the company’s transactions, regardless of when cash is received or paid. As a result, accrual accounting can help companies to make better decisions about their operations and finances. It is the most common accounting method used by businesses today and is required by GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards).

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