Distinguish between cash basis and accrual basis of accounting.
Distinction between Cash Basis and Accrual Basis
BASIS OFCash BasisAccrualDISTINCTIONBASIS(i)Legal positionIt is not recognised under theIt is recognised under theCompanies Act.Companies Act.(ii)Recognition of in-It is based on collection of cashIt is based on accrual ofcomes and expensesand payment of cash.incomes and expenses irres-pective of the fact whethercash is received or paid.(iii)Capital and revenueIt does not distinguishIt distinguishes betweenbetween capital and revenuecapital and revenue items.items.(iv)Estimates andIt is simple as it does notIt is not simple as it requirespersonal judgmentrequire use of estimates anduse of estimates and personalpersonal judgementjudegement.