Question

1.What is the difference between accrual basis and cash basis of accounting?

• Definition
• Why are they required
• Example
• What happens if they are not correctly prepared.

Answer 1

Accrual Basis : As per accrual basis of accounting, the revenue and expenses are recorded in Financial Statement as soon as the transaction occur even if they are not received or paid. Accrual basis of accounting is followed to comply with the "Matching" concept of account, as per which the revenue and expenses should be recorded in the same period. If this accrual basis is not followed , then the the profit/loss derived would not present the true picture.

Cash Basis : As per cash basis, the revenue and expenses are recognised only when they are received or paid.