Basis of Accounting

Cash Basis of Accounting:

Cash Basis of Accounting is a method of recording transactions by which revenues, costs, assets and
liabilities are reflected in the accounts for the period in which actual receipts or actual payments are
made.

Accrual Basis of Accounting:

The accrual basis of accounting recognizes revenue when earned and expenses when incurred, regardless of when cash exchanges hands. It provides a more accurate picture of a company’s financial health over a specific period by matching revenue with the expenses incurred to generate it, even if the actual cash transactions haven’t occurred yet. This method is commonly used for financial reporting, offering a more comprehensive view of a business’s financial performance compared to the cash basis of accounting.