Question

Discuss the advantages and disadvantages of the accrual basis of accounting.

Answer 1

Following are the advantages of accrual basis of accounting

(i) It is more scientific as compared to a cash basis of accounting.

(ii) It shows a true and fair view of financial statements by taking into consideration all advances and outstanding incomes and expenses.

(iii) It shows correct profit or loss of an enterprise.

(iv) It is recognised by Companies Act,2013.

Following are the disadvantages of accrual basis of accounting

(i) It is complicated as compared to a cash basis. There are adjustments which need to be carried out while preparing the final accounts.

(ii) It is a time-consuming process to prepare financial statements under the accrual basis of accounting.