Cash Basis Vs Accrual Basis of Accounting
Let us start with understanding what these two forms of Accounting are:
1. Accrual basis of accounting:
In most of the places, we find that The Accrual Basis of Accounting is the more commonly followed Accounting System.Accrual Basis of Accounting is a method of recording transactions by which revenue, costs, assets and liabilities are reflected in the accounts for the period in which they accrue.This basis includes consideration relating to deferrals, allocations, depreciation and amortization.This basis is also referred to as the mercantile basis of accounting.Under The Companies Act 2013, all the companies are required to maintain their books of accounts according to the accrual basis of accounting.
2. Cash basis of accounting:
There are certain entities which account income & expense in the period in which there is an actual inflow or outflow of funds & not when the right to receive or pay the same arises. Such an entity is said to follow the Cash System of Accounting.Cash Basis of Accounting is a method of recording transactions by which revenues, costs, assets and liabilities are reflected in the accounts for the period in which actual receipts or actual payments are made.
What is the difference between these two systems?
Here is a list of various differences between the two forms: Recommended Articles
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