Difference Between Accrual Basis Of Accounting Over Cash Basis Of Accounting. Do You Know?

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amber Jhon Profile
amber Jhon answered
There is a difference between the accrual basis accounting and cash basis accounting. In the accrual basis accounting, the records of the financial activities are recorded when the economic activity is carried out. For example, revenue is recorded when it is realized even if the actual payment has not received. Similarly, expenses are recorded by matching principle, even if they are not actually paid. Income statement is a perfect example of accrual based accounting.

On the other hand in the cash basis accounting, only transactions which give cash inflow or outflow actually are recorded. Only those revenues and expenses are recorded which are actually made by the companies. In other words cash receipts and cash payments are only recorded. Cash flow statement is the best example of the application of this accounting concept. For example, if a company sells its products to another company on credit, then the amount of revenues will be entered on the income statement but not in cash flow statement unless the company collects it.

Anonymous Profile
Anonymous answered
THe accruals basis of accounting takes into account transaction incurred during the accounting period under review but not yet paid for. The cash basis of accounting only records transactions that were paid for during the accounting period under review
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