Accrual VS Cash Basis of Accounting

Here we study about Accrual Basis VS Cash Basis of Accounting. Previously, we study in detail about these two Systems of Accounting in detail.

Ø Accrual Basis

Expenses and Revenues are recorded whether the amount of Cash is received or not, paid or not services rendered or  not. For Example, salaries paid to employees at the end of the month, rent for buildings, shops or transport, etc. paid in advance.

It is wider term as it includes both Cash Transactions and Non-Cash Items. Under this system, we can see the real picture or situation of the company businesses because we also take into account the amounts of those events or transactions for which whether Cash is paid or received.

Under this basis of Accounting, Management can take proper and timely decision because it shows real picture of company businesses.

Ø Cash Basis

In this system, Expenses and Revenues are recorded only when cash is received or paid. For Example, salaries paid to employees for cash, Rent paid for Cash, etc.

It is narrow term as it includes only those transactions for which Cash is received or paid and ignores the aspects of Non-Cash Items. We can not see the real picture or situation of the company businesses, because the only those transactions are recorded for which Cash is paid or received while other factors are ignored like Salaries Payable, Rent paid in Advance, etc.