explain the various basis of accounting and state their advantage and disadvantage
Answers
Explanation:
features of basic in accounting:
Simple, clear and straightforward as accounting adjustments at the end of the year are not to be made.
This method is flexible as one has the option of switching from Cash to Accrual basis of accounting and vice versa.
It follows the Single Entry System of Accounting.
Not as efficient, accurate and reliable as Accrual Basis of Accounting.
No concept of matching revenues and expenses.
ADVANTAGES OF CASH BASIS ACCOUNTING:
This system does not require expert accounting knowledge. It is just based on the actual receipt and actual payment of cash. So, small businesses and sole proprietors can easily record and maintain their transactions in a small notebook without preparing a separate set of systematic books.
This is definitely cheaper than the accrual system of accounting. The reason is that the accrual system follows the double entry system of accounting which records each and every transaction in a systematic way. Therefore, the double entry system requires software for efficient recording. There is no requirement of voluminous records and thereby software in a single entry system and hence it is cheaper.
Since it is simple and requires recording less no. of transaction compared to accrual system, it is less time-consuming.