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Basis of Accounting Video Lecture | Accountancy Class 11 - Commerce

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FAQs on Basis of Accounting Video Lecture - Accountancy Class 11 - Commerce

1. What is the basis of accounting?
Ans. The basis of accounting refers to the set of principles, rules, and guidelines that govern how financial transactions are recorded, reported, and analyzed. It provides the foundation for preparing financial statements and ensures consistency and comparability in financial reporting.
2. What are the different bases of accounting?
Ans. There are two main bases of accounting: cash basis and accrual basis. In cash basis accounting, transactions are recorded when cash is received or paid, while in accrual basis accounting, transactions are recorded when they occur, regardless of when cash is received or paid.
3. What are the advantages of accrual basis accounting?
Ans. Accrual basis accounting offers several advantages. It provides a more accurate representation of a company's financial position by matching revenues with expenses, enabling better analysis of profitability. It also allows for better tracking of accounts receivable and accounts payable, providing a clearer picture of a company's cash flow.
4. What are the disadvantages of cash basis accounting?
Ans. Cash basis accounting has some limitations. It does not provide a comprehensive view of a company's financial performance as it only records cash transactions, ignoring non-cash transactions such as credit sales or expenses incurred but not yet paid. This can lead to misleading financial statements and hinder decision-making.
5. Which basis of accounting is generally preferred for business entities?
Ans. Accrual basis accounting is generally preferred for business entities due to its ability to provide a more accurate and comprehensive view of a company's financial performance. It aligns with the matching principle, allows for better analysis of profitability, and provides a clearer understanding of a company's financial position.
82 videos|105 docs|42 tests

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