Cash VS Accrual
Accounting is said to be an important task for every business enterprise. Accounting is the process that involves recording, classifying, and summarizing the day-to-day transactions in terms of money and interpreting the results there off. The accounting process is carried on with the help of accounting principles and standards.
In India, the accounting principles and accounting standards are set up by the ICAI (Institute of Chartered Accountants of India). These are helpful in preparing the accounts and financial statements by the company with regard to Indian standards.
After the advent of globalization, business firms have increased their business operations all over the world. Even in India also, business firms are now attached to global companies all over the world. Due to this, the sharing of accounting information becomes necessary. But was not possible to compare the information of accounts in which statements are compelled accordingly to the Indian accounting standards only.
There was a need for international standards which will be applicable to all firms all over the world. For the same, the U.S. has come up with the new concept of GAAP (Generally Accepted Accounting Principles). This includes the set of accounting principles, standards, and procedures that are to be followed by every business firm while preparing the financial statements. These are the commonly accepted principles all over the globe, making the comparison and understanding easy of financial statements.
While compiling the financial statements and doing the accounting process there are two methods that are adopted by the business organizations:
- Accrual Method of Accounting
- Cash Method of Accounting
The choice of method by the business firm is easily reflected in the Balance Sheet and Profit & Loss Account. The whole accounting procedure is followed up on the basis of the method choose by the business firm. You can’t switch to another method in between the process and changing the method very frequently is also avoided.
Cash Method of Accounting
In the cash basic method of accounting, the income and expenses are recorded only when they are actually borne or received. The transactions for income and expenses are recorded when the cash actually shows inflow or outflow in the organizations. In short, only cash transactions are recorded.
Accrual Basis of Accounting
The accrual method of accounting includes the recording of incomes and expenses at the time period when they actually arise or tend to arise. These transactions are recorded at the same time whether they are paid or not and received or not. In this situation, there are several accounts that are to be maintained and balanced by the company. Like:
- Accounts Receivable
- Accounts Payable
- Any Income received in advance
- Any Expenses paid in advance
- Any income arises but is not yet received
- Any expense arises but is not yet paid
CASH VS ACCRUAL
Both the methods of accounting have their own importance in the accounting process. A cash basis is suitable only for the sole proprietor small business. The accruals mode of accounting is highly appropriate in the business firm mainly for medium and larger firms. This has a higher scope, as it covers all the aspects of a business entity. A clear and real view of business operations can be seen from it.
In Accounting Outsource Hub the whole outsourcing services for accounting and bookkeeping process is carried on with the base of a double entry system and we follow the accrual method for accounting. We will facilitate you providing the all financial data on the accrual picture. Even our clients want to compel their data on the form of an accrual basis. We generate all the financial reports on the same method. The data will be highly accurate and reliable. But we are also dealing with a few clients that want to follow us in the accounting process on a cash basis and we are just following their instructions.
We are here for meeting all your requirements. You just instruct us and we do the work according to your need. And you just have to pay for the outsourcing services you asked for. Contact us for a free demo.