First of all let us define meaning of each of these
Accrual basis accounting
In the accrual bases of accounting revenue or expenses is recognized when they are earned or occured regardless of the timing of actual recipt or payment .Accrual basis accounting is more used than Cash basis method.The accrual method is the only method of accounting that conforms to the provisions of Generally Accepted Accounting Principles (GAAP) in the U.S.A. This method provides the most information regarding the financial status of an organization
Cash basis accounting
In the cash basis the revenues recognizes when cash is received, and expenses when they are paid. Cash method does not recognize accounts receivable or accounts payable. Generally small businesses use the cash basis of accounting because it is simple to maintain.
The main difference between accrual and cash basis accounting is the timing of when revenue and expenses are recognized.
let us give the diffrance between both of them are as follow
| Cash Basis | Accrual Basis | |
| GAAP | Does not meet GAAP requirements | Meets GAAP requirements |
| Benifit | Advantagesis that this method is generally, an easier method for smaller business units. Sometime it provide adequate information of the financial condition of the business unit | Benifit of this method is , provide more accurate information aboutincome and expenses of an entity; accounting for outstanding commitments and prepaid cash receipts, this method allows for more accurate measurement of net income/(loss) |
| when entry recorded | Accounting method in which income is recorded as cash is received and expenses are recorded when cash is paid | Accounting method in which income is recorded when earned and expenses are recorded when incurred, regardless of cash flow |
| Available | The cash basis is only available for use if a company has no more than $5 million of sales per year | It is available for any type of business entity.The accrual basis is used by all larger companies, for several reasons |
