Cash System vs Accrual System: Commission Income for Financial Year 2018-19

There are two methods of accounting for income and expenses in a business - cash system and accrual system. The choice of method has a significant impact on how the commission income for the financial year 2018-19 is calculated.

Cash System

Under the cash system of accounting, income is recognized only when it is physically received, and expenses are recognized only when they are paid. Therefore, the commission income for the financial year 2018-19 under the cash system would be the total amount of commission received during the year.

For example, if an agent received commissions of $10,000 in the financial year 2018-19, the commission income for that year would be $10,000. However, if the agent received a commission of $5,000 in the financial year 2017-18, but it was paid in the financial year 2018-19, it would not be included in the commission income for the financial year 2018-19 under the cash system.

Accrual System

Under the accrual system of accounting, income is recognized when it is earned, regardless of whether it has been physically received or not. Expenses are recognized when they are incurred, regardless of whether they have been paid or not.

Therefore, the commission income for the financial year 2018-19 under the accrual system would be the total amount of commission earned during the year, regardless of whether it was physically received or not.

For example, if an agent earned commissions of $15,000 in the financial year 2018-19, but only received $10,000 of it during the year, the commission income for that year would still be $15,000 under the accrual system.

Conclusion

In conclusion, the choice of accounting system has a significant impact on how commission income is calculated for the financial year 2018-19. Under the cash system, commission income is recognized only when it is physically received, while under the accrual system, commission income is recognized when it is earned.