Question

Q5. Give any three points of distinction between cash basis and accrual basis of accounting.​

Answer 1

Answer:

The main difference between accrual and cash basis accounting lies in the timing of when revenue and expenses are recognized. The cash method is a more immediate recognition of revenue and expenses, while the accrual method focuses on anticipated revenue and expenses.

Explanation:

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Answer 2

Answer:

In the world of accounting, there are two methods of recording accounting transactions, which are cash basis and accrual basis.

While the cash basis method of recording involves immediate recognising of any expenses and revenues, the accrual basis is based on anticipation of the expenses and revenues.

In other words, the cash basis of accounting recognises the expenses incurred and revenues earned immediately, when money changes hands between two parties involved in the transaction.

Whereas, the accrual basis of accounting recognises expenses when they are billed (not paid) and revenues when they are earned.

Cash basis of accounting is adopted by small businesses while large corporations and publicly traded companies prefer the accrual method.

Let us discuss some of the points of difference between the cash basis of accounting and accrual basis of accounting.