Q.3-1RQ
Question
What is the difference between cash basis accounting and accrual basis accounting?
Step-by-Step Solution
Verified Answer
Under the cash basis accounting, revenues and expenses are recording on the basis of cash receipt or payment, whereas under accrual basis of accounting, it is recorded on the basis of earned or incurred.
1Explanation on Cash Basis Accounting
Cash basis accounting records the transactions that are cash nature only. The revenues and expenses are recorded when cash is received or paid by the business. This method is allowed under GAAP.
2Explanation on Accrual Basis Accounting
Accrual basis of accounting records the revenues of the business when it is earned, in case of expense it is recorded when it is incurred. It is not affected by cash receipt or payment.
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