Question

Distinguish between cash basis and accrual basis of accounting.

Answer 1

Distinction between Cash Basis and Accrual Basis

$\begin{array}{cccc}& \text{BASIS OF}& \text{Cash Basis}& \text{Accrual}\\ & \text{DISTINCTION}& & \text{BASIS}\\ \text{(i)}& \text{Legal position}& \text{It is not recognised under the}& \text{It is recognised under the}\\ & & \text{Companies Act.}& \text{Companies Act.}\\ \text{(ii)}& \text{Recognition of in-}& \text{It is based on collection of cash}& \text{It is based on accrual of}\\ & \text{comes and expenses}& \text{and payment of cash.}& \text{incomes and expenses irres-}\\ & & & \text{pective of the fact whether}\\ & & & \text{cash is received or paid.}\\ \text{(iii)}& \text{Capital and revenue}& \text{It does not distinguish}& \text{It distinguishes between}\\ & & \text{between capital and revenue}& \text{capital and revenue items.}\\ & & \text{items.}& \\ & & & \\ \text{(iv)}& \text{Estimates and}& \text{It is simple as it does not}& \text{It is not simple as it requires}\\ & \text{personal judgment}& \text{require use of estimates and}& \text{use of estimates and personal}\\ & & \text{personal judgement}& \text{judegement.}\end{array}$