Difference Between Accrual Accounting and Cash Accounting

 Following are the main difference of accrual accounting and cash accounting :

1. On the basis of Meaning

  In accrual accounting or accrual base accounting, we record all the revenues and expenses whether we receive or pay these in cash or not.  In cash accounting or cash basis accounting, we record the transaction when we receive money or we pay money.

2. Effect on Profit and Loss Account 

  If we use accrual accounting method, our profit and loss account will be affected from income received in advance, outstanding income, advance expenses and outstanding expenses. Both Advance expenses (Due to not showing in debit side profit and loss account) and outstanding income ( Due to showing in the credit side of profit and loss account) will increase the profit of company. Outstanding expenses and advance income will reduce the profit of company.

If we use cash accounting, our profit and loss account will also record only cash expenses and cash revenue. It means advance income and outstanding expenses will income the profit of company  and advance expenses and outstanding income will reduce the profit of company which is just opposite of profit and loss accounting which is maintained under accrual accounting.

3. Effect on Balance Sheet

If we make balance sheet on the basis of accrual accounting, credit sale will increase the size of total assets because we have to get money from our debtors. And credit purchase or outstanding expenses  will increase the size of liabilities because we have to give money from our creditors. Outstanding revenue is also part of current assets in the accrual accounting method.

If we make balance sheet on the basis of cash accounting, advance revenue and advance expenses will affect the size of assets and liabilities of company. Advance revenue and advance expenses will treat normal income and expenses in cash accounting. Difference of this will be closing balance of cash which will current asset of company. If advance revenue is more than advance expenses, our current assets will be more in the balance sheet. 

Related : Cash Accounting 






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Accounting Education: Difference Between Accrual Accounting and Cash Accounting
Difference Between Accrual Accounting and Cash Accounting
Accounting Education
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