Iv it reflects true profit or loss during the

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(iv) It reflects true profit or loss during the accounting period and, therefore, has wide acceptability. This system is followed by most of the industrial and commercial firms. Disadvantages : The disadvantages of Accrual Basis of Accounting are: (i) This system is not as simple as Cash Basis of Accounting. (ii) The accounting process is too elaborate. (iii) A quick appraisal of the profit/loss is not possible because many adjustments are required to ascertain the true financial position of the business.
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27 Address: Plot No 420, Behind Shopprix Mall, Vaishali Sector 5, Ghaziabad 201010 M: 9999907099, 9818932244 O: 0120-4130999 Website: , Q.10. What are the difference between Accrual Basis of Accounting and Cash Basis of Accounting ? Ans. Difference between Accrual Basis of Accounting and Cash Basis of Accounting are: Basis Accrual Basis of Accounting Cash Basis of Accounting Recorded of Transactions Both cash and credit transactions Cash transactions are recorded. are recorded. Prepaid/Outstanding Prepaid and outstanding expenses are Prepaid and outstanding accounted in the Profit and Loss account. Expenses are not adjusted. Expenses Accrued income and income received Similarly, accrued income and Accrued Income/Income in advance are also accounted and income received in advance Received in Advance shown in the Balance Sheet. are not adjusted. Profit or Loss Correct profit or loss is ascertained Correct profit or loss is not because it records both cash and credit ascertained because it records transactions. Only cash transactions Technical Knowledge The Accrual Basis of Accounting requires It does not require much of technical knowledge as many adjustments technical knowledge as is like prepaid, outstanding, capital and required for Accrual Basis revenue are required to be made. Of Accounting. Legal Position Accrual Basis of Accounting is recognised Cash Basis of Accounting is not By the Companies Act, 1956. recognised by the Companies Act, 1956. Acceptability Accrual Basis of Accounting is more acceptable Cash Basis of Accounting is not in business as it reveals correct income and acceptable in business as it expenses besides assets and liabilities. does not reveal the required information. Reliability Accrual Basis of Accounting is more reliable Cash Basis of Accounting is As it records both cash and credit transactions less reliable as it records only and, thus reveals correct profit or loss besides cash transactions and as a assets and liabilities. result does not reveal correct profit or loss and also assets and liabilities. Suitability Accrual Basis of Accounting is suitable for Cash Basis of Accounting is business as it requires information that suitable for Not-for-Profit is complex. It can be made available by Organisations and Accrual Basis of Accounting. Professionals such as Chartered accountants, Lawyers,etc., since they require comparatively less information.
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28 Address: Plot No 420, Behind Shopprix Mall, Vaishali Sector 5, Ghaziabad 201010 M: 9999907099, 9818932244 O: 0120-4130999 Website: ,
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