Accrual vs Cash Accounting Basis

Topics: Generally Accepted Accounting Principles, Asset, Balance sheet Pages: 18 (5041 words) Published: May 2, 2013

Public Sector Accounting System in Nigeria: A Comparative Study of Cash-Basis and Accrual-Basis of Reporting


Cletus .O. Akenbor (Ph.D)
Faculty of Management
University of Port Harcourt, Choba
Rivers State, Nigeria


Tennyson Oghoghomeh
Director – Finance and Accounts
Office of the Deputy Governor of Delta State
Asaba, Nigeria
Tel: +2348035537037


The objective of this study is to investigate the accounting system that should be adopted in the Nigerian public sector for achieving the financial, public and growth objectives of the government. To achieve this purpose, research questions were raised, hypotheses were formulated and a critical review of extant literature was made. The population of the study consists of eighteen(18) state legislators and thirty-nine(39) Directors of Finance and Accounts of the chosen ministries and extra-ministerial departments. In order to generate the necessary data for this study, the survey method of research design was adopted in which a well structured questionnaire designed in five-point Likert-Scale was administered on the study population. The data generated for this study were analysed using mean scores while the stated hypotheses were statistically tested with Z-test. The findings generated from this study indicated that cash basis of accounting does not significantly promote effective financial reporting of public sector entities in Nigeria, since the z-test result shows that the computer z-value (1.0) is less than the critical z-value (1.96). Similarly, it was gathered in this study that accrual basis of accounting significantly promotes effective financial reporting of public sector entitles in Nigeria. In view of the above findings we recommended the adoption of accrual basis of accounting in public sector entitles in Nigeria.

Key words;Cash accounting, accrual accounting, public sector entity, assets and liabilities, receivables and payables


In modern democratic governance, the basic objectives used in assessing the performance of public sector organizations are – financial objective, public objective and growth objective. While the financial objective is concerned with the ability of the government to meet the needs and aspirations of taxpayers, public objective focuses on meeting the demands of the citizenry (i.e. those within and outside the tax bracket), and the growth objective is tailored towards improvement in economic performance and international relations (Okoye and Oghaghomeh, 2011). An efficient and transparent public sector financial reporting system can be very helpful in achieving the above objectives as such a system enhances the credibility of financial information, public trust and attracts foreign investment.

The South Asian Federation of Accountants – SAFA (2006) revealed the following issues to be considered in choice of public sector accounting system – accountability in the use of public funds, timeliness of financial information, efficient financial management and control system, transparency in decision-making, good governance, comparability of financial reporting with other countries of the world, ease of raising capital from the international markets, and donor agencies, and reliable information on the use of taxpayers’ money.

A review of existing literature on cash accounting and accrual accounting systems indicate that cash accounting system provides essential information and it is simple, easier to understand, facilitate decision making, and much more objective than other alternatives (Ross, 2003. However, the system is not intended to provide information on the cost of services, earned revenues, account receivables, account payable, long-term assets and liabilities,...
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