Question

Explain a transaction-based accounting system requiring accrual accounting.

Answer 1

As we know that accrual accounting recognize revenues and expenses when these are incurred. Accrual accounting does not wait for the exchange of cash for the transaction for example; it is not necessary that real cash must be received or paid for recording the transaction in accounts. So overall we can say that accrual accounting focuss on recording of the transactions when revenues and expenses incurred.

As we know that accrual accounting is most accepted method of recording business transaction and accounting bodies & government also approves this method of accounting. So this is the demand of transaction based accounting system that recording should be made as per accrual accounting because all real transactions will be truly depicted through accrual accounting because this system of accounting will record all relevant transactions of the period on the basis of occurrence of transactions. As we have already discussed that accrual accounting records all transactions when these are incurrred hence under this system a business entity does not required to wait untill actual movement of cash.

So overall we can say that transaction based accounting system requires accrual accounting.