Difference Between Cash Accounting and Accrual Accounting

Difference between Cash Accounting and Accrual Accounting - Difference Between Cash Accounting and Accrual Accounting

Difference Between Cash Accounting and Accrual Accounting: –

The business financial transaction means those transactions which have some monetary values and we can record these transactions in the book of accounts in two way one is cash basis system and another is accrual basis system. In the cash system, we will record the transaction when the cash is actually paid or received for expenses and income respectively but in the accrual system, we will record the transaction when expense and income actually incurred or earned not at the time when cash is received or paid.

The Content covered in this article: –

  1. Meaning of Cash Basis Accounting
  2. Meaning of Accrual Basis Accounting
  3. Chart of Differences
  4. Download links of format jpg and pdf. 

Meaning of Cash Basis Accounting: –

In Cash basis accounting system, we will record only those transactions in which cash is actually paid against the expenses and received against the income. We did not record any transactions related to the payables or receivables in the books of accounts.

In short, only cash transactions are recorded in the books of account.

Example: – 

  1. Cash sale for Rs 5,000/-
  2. Sold goods to Ram Rs 10,000/- on credit

Solution: –

  1. This transaction is recorded in the books because it is a cash transaction.
  2. This transaction is not recorded in the books because it is a credit transaction.

Meaning of Accrual Basis Accounting: –

In Accrual basis accounting system, we will record transactions when expenses are incurred and it may be paid or not. and when the incomes are earned and it may be received or not. We will record all transactions related to the cash, payables or receivables in the books of accounts.

In short, both cash and credit transactions are recorded in the books of account.

Example: – 

  1. Cash sale for Rs 5,000/-
  2. Sold goods to Ram Rs 10,000/- on credit

Solution: –

  1. Both transactions are recorded in the books of accounts in the accrual basis accounting system.

Chart of Difference between Cash Accounting and Accrual Accounting : –

Basis of Difference

Cash Basis Accounting

Accrual Basis Accounting

Meaning
In Cash basis accounting system, we will record only those transactions in which cash is actually paid against the expenses and received against the income In Accrual basis accounting system, we will record transactions when expenses are incurred and it may be paid or not. and when the income earned and it may be received or not.
Object 
To know the actual cash balance of the business To know the actual profit/loss of the business in the particular accounting period.
Process of Recording
Simple Complex
Financial Statement 
The financial statement does not show the actual financial position of an entity because total incomes and expenses are not shown in the books of the account. The financial statement does show the actual financial position of an entity because actual income and expenses are shown for the particular accounting period.
Recognized
This system is not recognized by the law. This is a recognized system of accounting.
Business Transactions 
The only cash transaction is recorded. Both Cash and credit transactions are recorded.
Accuracy
It is a less accurate system of accounting. It is more accurate as compared with the cash basis accounting system.
Level of Business
It is suitable for only a very small business. It is suitable for all level business.

If you want to Download the chart please download the following image and PDF file: –

Chart of Difference between Cash Accounting and Accrual Accounting 300x229 - Difference Between Cash Accounting and Accrual Accounting
Chart of Difference between Cash Accounting and Accrual Accounting
application pdf - Difference Between Cash Accounting and Accrual Accounting
Chart of Difference between Cash Accounting and Accrual Accounting

 

The conclusion of Difference between Cash Accounting and Accrual Accounting: –

The main difference in both systems is the time of recording the transactions. In cash basis accounting system, it recorded when cash received and paid and in accrual basis accounting system it is recorded when the expenses and incomes have occurred.

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