Differences between Cash Basis and Accrual Basis of Accounting
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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 BasisAccrual Basis
Timing of recording transactionsRecord transactions when cash is received or paidRecord transactions when they are incurred, regardless of whether cash has been received or paid
Revenue recognitionRevenue is recognised when cash is receivedRevenue is recognised when they are incurred, regardless of whether cash has been paid
Expense recognitionExpenses are recognised when cash is paidExpense are recognized when they are incurred, regardless of whether cash as been paid
Financial statement presentationDoes not give a complete picture of a company's financial healthProvides 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.

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