What is Cash basis accounting?
In the cash basis accounting system,we will record only those transactions in which cash is actually paid against expenses and received against income.In this system did not record any transaction relating to receivables or payables in the books of account.In short only cash transactions are recorded in the books of account.
What is Accrual basis accounting?
In the accrual basis accounting system we will record transactions when expenses are incurred and whether or not they can be paid.And when income is earned and whether it is received or not. We record all transaction relating to cash,payables or receivables in the books of account.In short both cash and credit transactions are recorded in the books of account at the time of preparation of accounting.
Difference Between Cash Basis vs Acrual Basis Accounting System
Cash basis accounting system:
1.Cash basis of accounting is not recognized by companies act 1956.
2.It records only cash transactions.
3.It is simple to understand and practice.
4.It doesn’t consider outstanding prepaid and accrued transactions.
5.It is not a reliable basis of accounting.
6.It doesn’t give a true picture of financial performance and position.
7.It is generally used by professional people.
8.The accountant can’t follow an alternative method.
9.This basis of accounting has a narrow scope.
10.It is followed by non-trading organisations.
Accrual basis accounting system:
1.Accrual basis of accounting is recognized by companies act 1956.
2.It records both cash and credit transactions.
3.It is so complex and technical.
4.It considers outstanding prepaid and accrual transactions.
5.It is a realizable basis.
6.It gives a true picture of financial performance and position.
7.It is generally used by business enterprises.
8.The accountant can follow alternative methods.
9.This basis of accounting provides a wider scope.
10.It is followed by a trading organization.
