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

Question

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

Finance ManagementAccountingAcademic Content

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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.

Mandalika

Published on 14-Aug-2020 10:14:12

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