CameraIcon
CameraIcon
SearchIcon
MyQuestionIcon
MyQuestionIcon
1
You visited us 1 times! Enjoying our articles? Unlock Full Access!
Question

Differentiate between accrual basis and cash basis of accounting.

Open in App
Solution

The differences between accrual basis and cash basis of accounting are:

BasisAccrual Basis of Accounting Cash Basis of Accounting Nature of TransactionsBoth cash and credit transactions are recorded. Only cash transactions are recorded.Advance/OutstandingThese are adjusted in profit and loss account These are not adjusted in profit and loss account norIncomes and Expensesand shown in balance sheet.shown in balance sheet.Reliability of ProfitsCorrect profit or loss is ascertained because itCorrect profit or loss is not ascertained because itrecords both cash and credit transactions.records only cash transactions.Accounting KnowledgeThe accrual basis of accounting requiresIt does not require much of accounting knowledge,accounting knowledge,as many adjustments of as only cash receipts and cash payments areadvance,outstanding,capital and revenue are toconsidered for financial statements.be carried out in financial statements.Legal PositionAccrual basis of accounting is recognised by theCash basis of accounting is not recognised by theCompanies Act,2013Companies Act,2013AcceptabilityAccrual basis of accounting is more acceptableCash basis of accounting is not acceptable inin business,as it reveals correct income and business as it does not reveal the requiredexpense besides assets and liabilities.information.SuitabilityThis basis is suitable for business.This basis is suitable for non-for-profit organisationand professionals like,doctors,lawyers,Chartered Accountants,etc.


flag
Suggest Corrections
thumbs-up
35
Join BYJU'S Learning Program
similar_icon
Related Videos
thumbnail
lock
Accounting Aspect
ACCOUNTANCY
Watch in App
Join BYJU'S Learning Program
CrossIcon