Question

4. Cash basis vs. accrual basis of accounting: A business enterprise recorded cash sales of
Rs. 15.5 Million and credit sales of Rs.7.8 million during the year 2019-20. The cash
purchases during the year were Rs.13 million whereas credit purchases amounted to Rs.4
million. The enterprise also paid Rs.3 million towards various expenses including an
advance payment of Rs.lmillion to one of the vendors. Ascertain the profit for the year
using: (a) Cash basis of accounting and (b) Accrual basis of accounting.

Answer 1

Answer:

19+090Explanation:

Answer 2

Cash Basis Profit = (0.5) million

Accrual Basis Profit - 4.3 million

GIVEN: Transaction of a business.
TO FIND: Profit made
SOLUTION:
As we know,

• In Cash basis all the transactions are taken into record irrespective whether they were incurred in past or will be realized in the future if the cash is being received in the current financial year, the it will be recorded.All the transaction that include exchange of cash is called Profit based on cash.
• Whereas, while accounting on accrual basis only the transaction incurred or realized in the present year are taken into account irrespective the cash has been exchanged or not.

Calculating profit from Cash Basis

=15.5 million(cash sales) - 13 million(cash purchases) - 3 million(expenses)

= (0.5 million)

There is a loss of half million according to cash basis.

Calculating profit from Accrual Basis

= (15.5 + 7.8 million) (sales) - (13 - 4 million) (purchases) - (3 -1 million)                            

   (expenses)

= 4.3 million

There is a profit of 4.3 million according to accrual basis.

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