What is the difference between Accrual Accounting and Cash Accounting?

 

Cash accounting is used when only cash transactions occurred in a company. It does not include any credit transactions. It is the simplest method to record transactions in a book of accounting. It does not include outstanding expenses, prepaid expenses, unearned income etc. But it does not provide accurate picture of a company. It also cannot help to predict the future trends. It is beneficial for those business enterprises which are small in size and sales volume are low.

In Accrual accounting transactions are recorded when expenses recognize and revenue recognize. It doesn’t matter cash received or paid at that time or not.  It is widely used in comparison to cash accounting. It includes outstanding expenses, prepaid expenses, unearned income, cash sales, income received in advance etc. It provide more accurate picture of a company. It is used internationally. Bills payable and bills receivables both are included in it.

Let’s differentiate between Accrual accounting vs. Cash accounting:

S.No.	Point of difference	Accrual accounting	Cash Accounting
1	What is the meaning of accrual accounting and cash accounting?	Accrual accounting means revenue and expense recognition both the transaction are recorded.	Cash accounting means only cash transaction is recorded when they received.
2	Which accounting is simple to use?	Accrual accounting is more difficult in comparison to cash accounting.	Cash accounting is simple because only cash transaction is recorded in comparison to cash accounting.
3	What is included in accrual accounting and cash accounting?	In accrual accounting both cash and credit are recorded like cash sales, outstanding expenses, income received in advance.	In cash accounting only cash transaction is recorded like expenses paid in cash, revenue in cash.
4	What is not included in accrual accounting and cash accounting?	In comparison to cash accounting, accrual accounting included both cash and credit transaction.	In cash accounting credit transaction is not recorded. It means the transaction in which cash is not paid or received is not recorded in this accounting.
5	Which is more popular among accrual accounting and cash accounting?	Accrual accounting is more popular in comparison to cash accounting?	Cash accounting is not popular accounting.
6	Which accounting provides accurate financial position of a company?	Accrual accounting provides accurate result or financial position of a company.	Cash accounting does not provide accurate result if there is any credit transaction occurred in a company.
7	Which company uses accrual accounting and cash accounting?	Accrual accounting used by public company, large company.	Cash accounting used by small companies, non profit organisation.
8	What is tax benefit in accrual accounting and cash accounting?	In accrual accounting tax is paid to all transactions which is recorded in book either it is cash or credit.	In cash accounting tax is paid on cash transactions which are recorded in a book.
9	Example	Purchase a goods from in December and but payment made in February. In that case transaction recorded in December as accounts payable	Purchase a goods from in December and but payment made in February. In that case transaction recorded in February as cash received by supplier