Cash Basis and Accrual Basis CON Cash Basis of accounting Used when revenue is recognized based on cash actually received and expense is recognized only when cash payment is made.
This method is commonly used by small and petty traders who are unable to advance credit for goods sold.
Accrual Basis of Accounting Revenue is recognized (earned) once goods are delivered or services rendered to a customer and expense is incurred once benefit is derived or service is provided by another party.
This method is widely used by most businesses and all corporations. It is the approved basis for recording transactions by International Financial Reporting Standards
Incomplete Records Accounting records which have not been maintained according to strict double entry principles. Full records may not be available because; the proprietor of the business doesn’t keep a full set of account
some of the business accounts are accidentally destroyed or lost. there is no legal requirement. the cost of a bookkeeper is not justified. information for preparation of financial statements can be
Determination of Profit or Loss When accounting records are incomplete, profit may be determined using any of the following approaches;
Net Assets (Capital) Approach Based on the accounting equation. The only way capital can change is either by introduction of cash/resources, withdrawal of cash/resources, making profit or loss.
Cash Book (Income) Approach Elements of the financial statements are determined via series of adjusting entries.
Net Assets (Capital) Approach
- Spring '20
- Dr. ASRAVOR
- Balance Sheet, Generally Accepted Accounting Principles, net assets, Explain, Determine profit