cash and accrual accounting based o
Discuss FIIVE differences between cash and accrual accounting based on review of relevant
literature.
The FIVE difference between cash and accrual accounting are as follows:
1. recognition of revenue:
Under the accrual basis of accounting, revenue is realised as soon as goods and services are sold, whether cash is received or not.
Whereas, under the cash basis of accounting revenue is recognised only when the actual cash is received.
2. Recording of expenses :
Under the accrual basis of accounting, expenses are recorded in the books of account, in the year in which they are incurred, irrespective of whether the payment is made or not.
Whereas under the cash system of accounting, expenses are recorded, only when the payment in cash is actually made.
3. Inclusion of account receivables and payables:
Under the accrual basis of accounting, revenues and expenses are recorded on accrual basis irrespective of actual receipt and payment,
Thus this system recognises the A/R and A/P in its balance sheet.
Whereas under Cash system of accounting, no account payables and receivables balances are shown as only cash transactions are recorded under this system.
4. Reliability :
Accrual basis of accounting is considered more reliable because it represents the information in a better manner,
and includes the accrued and outstanding amount of income and expenses showing the financial position of an enterprise in a much better way than the cash system of accounting.
Cash system of accounting is considered less reliable and not able to represent the actual financial position of the enterprise.
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