Difference Between Accrual Basis Accounting and Cash Basis Accounting



 In  Accounting there are 2 types of transactions which is recording on the Books of Accounts. The business is running for long term so we are making some transaction on cash basis and some are accrual basis. Cash Basis mostly uses by some local stores but the Accrual Basis uses by small and medium size businesses. 


Accrual Basis Accounting:  (1). Accrual accounting is method of accounting where revenue and expenses are recorded when they earned, but actually it's not paid or received. There's Account receivable and Account Payable which will made in future.

(2). Accrual basis accounting mostly used by the mostly larger company. Like MNCs, and many others company.

 (3). In Income Statement will show higher income, but actually it's not correct.





Cash Basis Accounting  (1).  Cash Basis Accounting is method of which accounting where all Income and expenses paid in cash. So there's no Account receivable and Account Payable.

(2). Cash basis accounting used by the small business and some sole proprietorship company.

(3). In Income Statement will show relatively lower income.

Both types of accounting used in business, both are correct by law also. Some transactions made on cash basis and some made on Accrual basis is mostly depend upon the size of your business. All accounting terms have their own importance and benefits. 


Location: Texas, USA

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