Question

define the two major approaches to accounting system: cash versus accrual.

Answer 1

solution:

cash versus accrual.​

Cash base Accounting and Accrual basis accounting, both are accounting system for the recording of revenue and expenses but they differ on the following grounds:-

1. Timing: The timing of recording is different in the case of both the methods. Under Cash base accounting, the transaction of revenue is entered in the books of accounts when the cash payment is actually received and transaction of expenses are recorded, when actually the payment is made for the respective expenses. On the contrary, Under accrual base accounting, revenue is recorded when sales are made( Transfer of ownership) instead actual payment is received and expense is recorded when they occur instead when they are paid.

2. Application: Cash basis accounting method is most popular in case of small companies where the volume of transactions is limited. Whereas, Accrual base accounting is more suitable for large companies where the volume of transactions is huge.

3. Economical: Cash basis accounting method is more economical because transactions are recorded only when the actual cash inflow or outflow is there i.e. less need of record maintenance in comparison to the accrual basis of accounting where you have to record transactions even the cash flows have not occurred.

4. Realisation: Cash basis method depends on the realisation of cash but accrual basis method depends on the realisation of revenue or expenses.