Question

What is the difference between cash accounting and accrual accounting?

Answer 1

Cash Method : In Cash Method accounting all income and expenses are booked on the basis of actual receipts or actual payments.

For Revenue: Revenue is recognized only when cash is received it means if any sales is done on credit basis and amount is not received at the end of period than this is not taken in revenue account.

For Expenses: Expenses is taken in books only at the time of cash is paid for the services. If any amount is unpaid for any services than that expenses is not taken in books.

Accrual Accounting Method: In accrual basis if accounting method any income and expenses are taken on the basis of accrual not on the actual receipts of the same.

For Revenue: Any revenue is generated whether cash is received or not it is taken as revenue for that period as earned revenue.

For Expenses: Any expenses is accrued whether in actual paid or not to vendor it is taken as expenses.

Net income and cash in hand is same under cash method of accounting but in accrual accounting method we have to prepare the cash flow statement for arrived the actual cash in hand.