accrual basis of accounting and cash basis of acconting
THERE ARE TWO BASIS OF ACCOUNTING : CASH AND ACCRUAL
CASH BASIS : Under the cash basis of accounting entries are made in the books of account when the cash is received or paid when anything is sold or purchased or even when expenses are paid but not when the receipt or payment becomes due. This basis of accounting is inappropriate as matching concept of accounting is not applying here. Suppose payment of goods bought on credit in Jan 2014 is done in May 2014 then the whole balance sheet of 2013-2014 will become wrong. It is not preferred by any big organisation. SO THE CRUCKS ARE THAT THE RECORDS ARE ENTERED IN THE BOOKS OF ACCOUNTS WHEN THE EXCHANGE OF CASH OCCURS BUT NOT WHEN THE INSTANCE OCCURS AND PAYMENT IS DUE
ACCRUAL : It is correct way of recording transactions as revenues and payments are recorded in the books when they occur not when they are settled down by cash. This type of basis of accounting is correct and very commonly used by both small and big organisations.
Ab Samajh Aaya Paaji.
NOW THUMBS UPPPPPPP!
CASH BASIS : Under the cash basis of accounting entries are made in the books of account when the cash is received or paid when anything is sold or purchased or even when expenses are paid but not when the receipt or payment becomes due. This basis of accounting is inappropriate as matching concept of accounting is not applying here. Suppose payment of goods bought on credit in Jan 2014 is done in May 2014 then the whole balance sheet of 2013-2014 will become wrong. It is not preferred by any big organisation. SO THE CRUCKS ARE THAT THE RECORDS ARE ENTERED IN THE BOOKS OF ACCOUNTS WHEN THE EXCHANGE OF CASH OCCURS BUT NOT WHEN THE INSTANCE OCCURS AND PAYMENT IS DUE
ACCRUAL : It is correct way of recording transactions as revenues and payments are recorded in the books when they occur not when they are settled down by cash. This type of basis of accounting is correct and very commonly used by both small and big organisations.
Ab Samajh Aaya Paaji.
NOW THUMBS UPPPPPPP!