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Explain cash based accounting.
61 Lectures 1 hours
43 Lectures 33.5 hours
Cash based accounting means, it records only those transactions relates to cash. That means transactions of revenue and expenses are recorded when payments are made or received through cash only. It is a single entry accounting.
- It is useful for simple accounting system.
- It is used, if inventory is to be valued.
- It is useful, when audit is not necessary.
- It is useful in services business.
Reasons why companies prefer cash based accounting are given below −
- Single entry accounting.
- Few financial transactions.
- Very few employees.
- Few valuable physical assets.
- Very few inventory, supplies and cash in bank.
- Sole proprietorship.
- Privately held.
Legal reporting includes −
- Supports company’s income tax reporting.
- Paid government taxes.
- Forecast future budgets and sales revenue.
- Income tax withholding.
- Real time visibility.
Advantages are given below −
- Easy to understand.
- Useful for smaller companies.
- Easily created.
- Easily maintained.
- Doesn’t need complicated software.
Disadvantages are as follows −
- Does not give important information.
- Can’t estimate exact financial position of the firm.
- Explain the difference between accrual base accounting vs cash based accounting.
- Differentiate cash accounting and accrual accounting.
- What are Operating cash flow in accounting?
- Explain accounting period in finance and accounting.
- Write the accounting entries for cash flow hedge
- What are Investing activities in cash flow in accounting?
- What are cash flow from Financial activities in accounting?
- Explain the imprest system petty cash
- Explain about balance sheet in accounting.
- Explain about income statement in accounting.
- Explain about cash flows in financial management.
- Explain free cash flow to firm (FCFF)
- Explain the concept of depreciation in accounting.
- Explain about straight line depreciation in accounting.
- Explain the concept of depletion in accounting.