The Accrual Basis Of Accounting Is Far Superior To The Cash Basis Of Accounting
The Accrual basis of accounting is far superior to the Cash basis of accounting. Discuss.
The difference between accrual and cash basis of accounting is cash basis accounting recognizes revenues and expenses depends upon on timing. Cash basis accounting is simple, recognizes revenues when cash is received and recognizes expenses when cash is paid out only. It does not record accounts payable or receivable. For example, paid a service invoice on Feb, the expenses will be recognized as expenses on Feb, although the service has received on Jan.
The advantages of cash basis accounting are, easy to learn, less time consuming to handle, cash flow easy to be tracked and managed, income subject to tax when the actual income is received. Most of small business with no inventory using this method as it provides simple method to manage financial information and to maintain an accurate cash flow record.
Accrual basis accounting recognizes revenues and expenses at the time of activity occurred, unrelated to when the cash was received or paid. Meaning is, company records revenues or sales at the time it earns or occurs; example as, a sales invoice was issued on Jan, irregardless the payment only receive on Feb or later, the sales income is recognized as Jan income. As for company expenses will be recorded when received or used, even though the supplier invoice has not been received, an example, utility bills normally will receive after month, but this expenses need to be recorded as current month expenses.
I agree with the accrual basis of accounting is far superior to the cash basis of accounting. Even though cash basis accounting provides financial information too, but it cannot reflect the real financial position and future benefits, by contrast, accrual is reflects more real business finances. Refer to the World Bank (1), ‘accrual accounting is that it provides accountability for the company’s resources and how those resources are used.’
Assets
As accrual accounting
The difference between accrual and cash basis of accounting is cash basis accounting recognizes revenues and expenses depends upon on timing. Cash basis accounting is simple, recognizes revenues when cash is received and recognizes expenses when cash is paid out only. It does not record accounts payable or receivable. For example, paid a service invoice on Feb, the expenses will be recognized as expenses on Feb, although the service has received on Jan.
The advantages of cash basis accounting are, easy to learn, less time consuming to handle, cash flow easy to be tracked and managed, income subject to tax when the actual income is received. Most of small business with no inventory using this method as it provides simple method to manage financial information and to maintain an accurate cash flow record.
Accrual basis accounting recognizes revenues and expenses at the time of activity occurred, unrelated to when the cash was received or paid. Meaning is, company records revenues or sales at the time it earns or occurs; example as, a sales invoice was issued on Jan, irregardless the payment only receive on Feb or later, the sales income is recognized as Jan income. As for company expenses will be recorded when received or used, even though the supplier invoice has not been received, an example, utility bills normally will receive after month, but this expenses need to be recorded as current month expenses.
I agree with the accrual basis of accounting is far superior to the cash basis of accounting. Even though cash basis accounting provides financial information too, but it cannot reflect the real financial position and future benefits, by contrast, accrual is reflects more real business finances. Refer to the World Bank (1), ‘accrual accounting is that it provides accountability for the company’s resources and how those resources are used.’
Assets
As accrual accounting