Question

Can you describe some reasons why accrual basis accounting may still be beneficial even for personal finances? If you prefer cash for personal finances, can you explain why it may be more beneficial?

Answer 1

Under accrual basis of accounting expenses are matched with revenue and is recognised as income or expense when they are earnned and as per the matching principle whereas in cash basis revenue is recognised when they are received and expense is recorded when it is paid in cash.the basic difference in the above two methods is the timing difference when revenue and expenses are recognised.

why accrual basis accounting may still be beneficial even for personal finances-because it results into more accurate and reliable results and gives us a true and fair picture of the actual position because in accrual basis of accounting we use matching principle and it is beneficial even for the personal finance because it tells us about our exact position and helps us to do better financial planning.

If you prefer cash for personal finances, can you explain why it may be more beneficial? if we prefer to use cash basis of accounting than it will be easy for us to understand and will show us actual flow of cash and will resemble the cash flow statement however it should be restricted to small businesses or personal finance only otherwise it become more complex anfd will not give a true and fair picture.