Yes it is ryt that cash basis of accounting is not a better basis for depicting the correct financial position coz in this system the non cash transactions are avoided due to which correct result can not be determined

Introduction:
The basis of accounting refers to the method used to record and report financial transactions and events of a business. One such basis is the cash basis of accounting. While it may seem simpler and more straightforward, the cash basis of accounting is not a better basis for depicting the correct financial position of an enterprise.

Limitations of Cash Basis Accounting:

1. Timing of Revenue and Expenses: Cash basis accounting only recognizes revenue and expenses when cash is received or paid. This approach fails to capture the timing of revenue and expenses accurately. For instance, if a business receives payment for goods or services in advance, it will not be recorded as revenue until the cash is received, even though the economic benefit has been provided. Similarly, expenses paid in advance are not recognized until the payment is made, leading to a distorted financial position.

2. Accruals and Matching: Accrual accounting recognizes revenue and expenses when they are earned or incurred, regardless of when the cash is received or paid. This is important for matching revenue with the expenses incurred to generate that revenue. Cash basis accounting does not consider the matching principle, resulting in a mismatch between revenue and expenses. This can lead to an inaccurate representation of the financial position of the enterprise.

3. Measurement of Assets and Liabilities: Cash basis accounting does not provide a complete and accurate picture of an enterprise's assets and liabilities. It only records cash transactions, ignoring other valuable resources and obligations. For example, accounts receivable, accounts payable, inventory, and depreciation are not recognized under the cash basis. This omission can significantly impact the financial position and liquidity assessment of the enterprise.

4. Complexity of Financial Analysis: Cash basis accounting makes financial analysis and comparison difficult. Since revenue and expenses are recognized based on cash flows, it becomes challenging to evaluate the profitability and financial performance of the enterprise. Accrual accounting provides a more comprehensive and meaningful representation, allowing for better decision-making and analysis.

5. Compliance with Accounting Standards: International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) require businesses to follow accrual accounting for financial reporting. Cash basis accounting does not adhere to these standards, making it inappropriate for external reporting and compliance purposes.

Conclusion:
In conclusion, the cash basis of accounting may be simple and easy to understand, but it falls short in accurately depicting the financial position of an enterprise. The limitations of cash basis accounting, such as the timing of revenue and expenses, lack of accruals and matching, inadequate measurement of assets and liabilities, complexity of financial analysis, and non-compliance with accounting standards, make accrual accounting a better basis for portraying the correct financial position of an enterprise.