Differences between Cash Basis and Accrual Basis of Accounting
Cash basis and accrual basis are two different methods of accounting that companies use to record their financial transactions.
Main differences between these two methods:
|Cash Basis||Accrual Basis|
|Timing of recording transactions||Record transactions when cash is received or paid||Record transactions when they are incurred, regardless of whether cash has been received or paid|
|Revenue recognition||Revenue is recognised when cash is received||Revenue is recognised when they are incurred, regardless of whether cash has been paid|
|Expense recognition||Expenses are recognised when cash is paid||Expense are recognized when they are incurred, regardless of whether cash as been paid|
|Financial statement presentation||Does not give a complete picture of a company's financial health||Provides a more accurate picture of a company's financial health|
Overall, cash basis is often used for small business as it is simpler and easier to maintain. However, it does not give a complete picture of a company's financial health. While, accrual basis is required for larger businesses that are publicly traded.