What is a voucher? Prepare an imaginary specimen of voucher
What is cash basis of accounting. Write any two advantages of it.
Answers
Answer:
1. A voucher is a document evidencing a business transaction. It flows from the above definition that when a transaction is entered into, an evidence to that effect is also established. Such evidences are known as Source Documents. On the basis of Source Documents, a voucher detailing the accounts that are debited and credited is prepared.
Specimen of an imaginary voucher has been attached as an image.
2. Cash basis of accounting is a system in which transactions are recorded when cash is transacted, whether received or paid. It means, revenue is recognised on receipt of cash. Likewise, expenses are recorded as incurred when they have been paid. The difference between the total incomes and total expenses represents profit or loss of a business for the accounting period. Thus, when cash basis of accounting is followed, outstanding and prepaid expenses and income received in advance or accrued incomes are not considered.
Advantages of cash basis of accounting-
- It is a simple basis of accounting as adjustments for outstanding expenses, prepaid expenses, accrued income and income received in adcance is not made
- This approach is more objective as very few estimates and judgments are required.
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