Question

Explain briefly Cash and Accrual basis of accounting.​

Answer 1

in cash basis we record translation when even actual cash transactions occur....eg- when good sold at 1st january and debtor give cash on 1st October in this case we record translation in October

in other hand in accrual basis we record translation whenever occur....same as above eg. we record on 1st January......

all the companies follow accrual basis of account

hope you understand

Answer 2

ANSWER :

❖ Cash basis of Accounting :-

Cash basis of Accounting is a method of accounting in which only the cash transactions are recorded in the books of account.

• ➻ Only those transactions which give rise to receipt or payment of cash including banking transactions are recorded in the books of accounts under this method.

• ➻ Under this method no record is made for any amount which is due or accrued.

• ➻ Under the cash basis of accounting, profit is equal to the difference between the cash receipts and cash payments relating to revenue items during a given financial period.

• ➻ Units with cash transactions prefer under this basis of accounting.

• ➻ Accurate profit or loss can not be ascertained under cash basis of accounting.

• ➻ Application of the cash basis of accounting usually doesn't required technical knowledge.

• ➻ Cash basis accounting is generally used by professionals rendering service such as doctors, lawyers, Chartered accountants etc. for determining the net income.

❖ Accrual basis of Accounting :-

Accrual basis of accounting is a basis of accounting under which incomes are recorded or credited to the period in which they are earned irrespective of, whether the same has actually been received or not as well as expenses are charged to the period in which they relate, irrespective of the fact that they have actually been paid or not.

• ➻ Accrual basis of accounting is a method of accounting which takes into account all transactions taking place during a particular accounting period irrespective of whether the same has actually paid/received or not.

• ➻ This basis takes into account revenues and expenses as and when they are earned or incurred, not as cash received or paid respectively.

• ➻ Units with both cash and credit transactions prefer this basis.

• ➻ Under this method, the monetary effect of a transaction is taken into account in the period in which it is earned or incurred rather than in the period un which cash is actually received or paid by the enterprise.

• ➻ Application of accrual basis of accounting requires technical knowledge since it involves the adjustments of accounts for preparing final accounts.

• ➻ Under this basis, true and fair view about the financial position of the business entity can be ascertained.

• ➻ Accrual basis of accounting is used by the business units with profit motive to ascertain the actual profit or loss during a particular accounting period.