What is the difference between cash basis of accounting and accural basis of accounting?

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Cash Basis of Accounting

The word ‘Cash Basis Accounting’ itself communicates the meaning for a large extent. It is based on the recording of cash receipts and payments only. This method records the transactions of cash received or cash paid only after the receiving of cash or payment of cash. i.e, it does not record the transactions before receipt of the cash or payment of cash. This basis of accounting is not in compliance with the Generally Accepted Accounting Principles (GAAP).

Cash basis of accounting is generally followed by professionals like doctors, lawyers, charitable institutions, educational institutions, Accounting, etc. This Cash Accounting does not be able to provide the complete information regarding the business transactions and cannot be seen as a reliable source of accounting information.

Accrual Basis of Accounting

The system Accrual Basis of Accounting is based on the concept that the transactions are recorded when some revenue is earned irrespective of cash received or not, same is the case with expenses, the transactions relating to expenses are recorded when the expenses incurred irrespective of the payment made for them or not. This basis of accounting is fully in compliance with the Generally Accepted Accounting Principles (GAAP).

The accrual basis of accounting is generally followed by business enterprises, corporations, etc. This method of accounting will provide complete information regarding business transactions along with the statement of profit and loss and balance sheet for ascertaining financial position of the organization.

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