Question

What is the difference between cash basis accounting and accrual basis accounting?

Answer 1

Sr. No.	Cash Basis of Accounting	Accrual Basis of Accounting
1	According to Cash Basis Accounting, Revenue is recorded only after payment received and expenses are recorded when payments are made.	According to Accrual Basis Accounting, Revenue is recorded when earned irrespective of the cash received or not and expenses are recorded irrespective of the payments made or not.
2	Income or revenue is recorded when payments are received.	Income or revenue is recorded immediately after the sale is done.
3	Expenses are recorded only after the payment is made for them.	Expenses are recorded when incurred in the process of generating revenue.
4	Cash basis accounting is not in compliance with standards of GAAP.	Accrual basis accounting is fully in compliance with standards set by GAAP.
5	The time required for recording of transactions is less in Cash Basis.	The time required for recording of transactions is more in Accrual Basis.
6	The income statements may not provide the accurate and complete information in Cash Basis because the expenses and revenues are not matched always.	Accrual Basis method uses various accounts to record information which helps in providing complete and accurate information in income statements.
7	Commonly this method is followed by Professionals, Educational institutions, etc because of monthly transactions.	Usually, this method is followed by business enterprises, corporate organizations, etc because of the need for cash and credit transactions.
8	The Cash basis method does not record cash receivables and payables or uncollected payments.	The Accrual basis method records cash receivables and payables in the balance sheet.
9	The Cash Basis Accounting does not require any specialized knowledge to record the transactions because of simplicity in records.	The Accrual Basis requires the user with specialized knowledge to record the transactions because it involves receivables and payables, adjustments, etc.
10	This method of Cash Basis is not reliable does not provide an accurate financial position of the business.	Accrual Basis is considered as a reliable method because it provides complete information about cash transactions and credit transactions and provides accurate financial position of the organization.