Question

In 200 words or more, What are the differences between the cash and accrual methods of accounting? Explain the benefits of each for business.

Answer 1

Answer)

In cash method of accounting the revenue is said to be earned or expense is said to be paid only when cash is received or paid where as in accrual method the revenue is recorded as received and expense is recorded as paid as soon as is earned or expensed i.e on estimation that is will be received and paid on future but not when it is earned.

Advantages of cash method:

It is very useful for taxation purpose as cash is recorded only when it's earned so there won't be payment of tax on money that is yet to be earned as there is chance that such cash may not be received due to reasons like bad debts etc.

Advantage of accrual method:

Accrual method of accounting is mainly beneficial as it revenue and expenses is said to be made regardless the movement of cash and hence it is useful in ascertainment of true results of the operations.