Basis of Accounting – Cash Basis and Accrual Basis

It is the duty of accountant to calculate the correct net profit or net loss of the business. For this, accounting will use any one of following basis of accounting. Accountant cannot use both basis together.

As per this of accounting, accountant will record any income when it will receive in cash or through bank. Accountant will also record any expense when it will pay in cash or through cheque. We will not record any income receivable or expense payable. When income receivable will receive in cash, we will record. When expense payable will pay in cash, we will record it. Net profit or Net Loss through this, will be the cash net profit or cash net profit because there will not any entry of credit sale, credit purchase and income receivable and expense payable in it. We can calculate this cash net profit or net loss through making of receipt and payment account. In this account, we include both revenue and capital expenses which we have paid in cash. We also include both revenue and capital incomes when we will receive in cash. It means, expense on buying of any fixed asset and buying of stock will include in the payment side. We also include income from sale of fixed asset and income from sales  in receipt side which we receive in cash. As per company law 1956, to calculate the net profit or net loss on the basis of cash is not recognized.

As per accrual basis of accounting, we record both incomes which are received in cash or not but these  must be earned by businessman. All the expenses which are paid in cash or not but these must be due. Profit and lossaccount is made on this basis of accounting. We record both cash and credit revenue nature expenses and revenue nature incomes.

In the expense side, we include cash purchase, credit purchase, cash expenses and expenses payables. In the income side, we include cash sale, credit sale, cash incomes and income receivables. Net profit or net loss is calculated by comparing both income side and expense side. Some incomes which are in cash but these incomes are in advance. We will not include such incomes because these incomes are cash but not earned. If there are advance cash incomes in total incomes, we will deduct for calculating the net profit or net loss under this basis of accounting. Like this, if there are any advance payment which is paid but not due, we will deduct it from total expense. As per company law 1956, all company must follow the accrual basis of accounting. 


Comments on this Website
Share above Content to Your Friends


access account accountant Accounting accounting definitions accounting ebook Accounting education accounting procedure accounting process outsourcing Accounting Software advance advertising africa Amalgamation amendments announcements Annuity assets audit auditing Australia B.Com. balance sheet bank Bank reconciliation banking basic accounting BBA benefits best bill black money blog bloggers book keeping bookkeeping Branch Accounting - full tutorial budget Budget variance business businessman CA calculator canada capital capital budgeting career cash cash book cash flow statement Chiense children china class coaching coins college commerce commerce students company computer computer accounting conference Contact vinod kumar corporate accounting cost cost accounting cost center cost centre CPA credit credit card cs currency data Debit and credit debit cards debt debtor degree depletion depreciation documents dollar domain Downloads Dubai e-accounting earning education Education Loans email employee EPF ERP euromoney examination excel excise duty expenses facebook factor of loan fans feature fifo FII fiji finacle finance Financial financial accounting fire insurance flickr flow forensic forex formula france fraud free fun function fund GAAP GDP gdr germany gold goodwill goodwill accounting google google apps google apps google base google buzz google calendar Google docs google finance google fusion tables google talk govt. GST guide health Hindi Hindi Language history holding company How to treat FBT in Tally 9 HRA ICAI ICAWI ICICI Bank IFRS income income statement Income Tax India indian railway Indonesia inflation inflation accounting infographics information inspiration insurance insurance accounting interest international Internet Introduction of Tally 9 inventory investment invoice IT Japan Job costing journal entries Kalculate keyboard kindle kuwait laptop law LBT learning lease lecture ledger leducation Leverage Analysis liabilities lifo linkedin loan logical point loss loss of profit M.Com. m.phil malaysia management accounting manual accounting manufacturing account market marketing mastercard material MBA MCA media migration mobile money ms word ms. excel multi currency in tally 9 Multicurrency Accounting mutual fund national security new and sacrifice ratio new york times new zealand news NGO nonprofit-accounting North Georgia Mountains NPV NSE odbc office oman online application online accounting otcei pakistan parents pay pal pdf pie chart pie chart of income pnb podcast ppf presentation price privacy policy prize money prof. vinod kumar profit profit and loss account project management provision purchase puzzles quickbooks Quote quotes quotes of svtuition rating agency ratio analysis RBI readers real estate rectification of errors remote control reports reserves responsibility accounting retirement revenue Revenue reserves review risk rupees salary sale saudi arabia saving sbi scholarship school SEBI security service tax share share trading Shares shri lanka singapore sms social accounting society solution South Africa stock stock exchange structure student students study subsidiary company svtuition swiss bank tally tally 9 Tally 7.2 Tally 9 Tally.ERP 9 tanzania tax Tax Accounting TDS teacher teaching technology test testimonial testimonials thailand tips trading trading on equity transaction trend trial balance tuition twitter UAE UGC - NET Commerce UK United Arab Emirates university usa valuation VAT Video Voucher and vouching wikipedia working capital youtube
Accounting Education: Basis of Accounting – Cash Basis and Accrual Basis
Basis of Accounting – Cash Basis and Accrual Basis
Accounting Education
Not found any lecture VIEW ALL Readmore Reply Cancel reply Delete By Home PAGES Lectures View All RECOMMENDED FOR YOU Category ARCHIVE SEARCH ALL Lectures Not found any lecture match with your request, please help to write it and send it to our email at for making this website free accounting and finance encyclopedia. Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS CONTENT IS PREMIUM Please share to unlock