Explain the difference between accrual base accounting vs cash based accounting.

The main difference between accrual base accounting and cash base accounting is as follows −

Cash based accountingAccrual based accounting
  • It is a single entry accounting.
  • Only cash transactions are recognised.
  • Doesn’t recognise account receivables or accounts payable.
  • Useful for small companies.
  • Easy to understand.
  • Focus on liquidity.
  • Not recognised by companies act.
  • Not a holistic approach.
  • Not more accurate.
  • Matching concept can’t be applicable.
  • Low degree of accuracy.
  • Shows lower income in income statement.
  • Doesn’t meet GAAP requirements.
  • Can mislead financial status.
  • It is double entry accounting.
  • Revenue and expenses are recorded irrespective of cash.
  • Commonly used method.
  • Complex and difficult to understand.
  • Recognised by companies act.
  • Focus on revenue, expenses, profit and loss.
  • It has holistic approach.
  • More accurate method.
  • Match concept is applicable.
  • High degree of accuracy when compare to cash based.
  • Show higher income in income statement compared to cash based.
  • Meet GAAP requirements.
  • Necessitates a process to monitor transactions.