Question

Distinguish between Cash Basis and Accrual Basis of Accounting with examples. Briefly explain the accounting concepts to be observed at the time of preparing Final Accounts.

01 Dec 2020
Answer :
Word Count : 537

Cash Basis vs. Accrual Basis of Accounting:

Cash Basis:
Cash basis accounting recognizes revenues and expenses only when cash is received or paid. It is a straightforward method commonly used by small businesses and individuals. The key characteristic is that transactions are recorded when actual cash changes hands.

Example:
Consider a small business selling goods. If they make a sale on credit in December but receive the payment in January, under cash basis accounting, the revenue is recorded in January when the cash is received.

Accrual Basis:
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