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 accounting | Accrual 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.
|
Published on 14-Aug-2020 06:44:12
