BASES OF ACCOUNTING

There are three basis of accounting:

1. Cash basis
2. Accrual basis
3. Hybrid basis

1. Cash Basis of Accounting:

 Transactions are recorded only on cash basis.
 Incomes are recognized and recorded on their actual receipt.
 Expenses are recorded only when they are actually paid.
 Outstanding expenses, prepaid expenses, accrued incomes and pre-
received incomes do not get reflected in the financial statements.
 Operating result is ascertained by matching cash expenses against cash
incomes.
 It excludes the recording of inventories, receivables and payables in the
financial statement.
2. Accrual Basis of Accounting:
 Transactions are recorded on accrual basis
 Incomes are recognized when they are earned.
 Expenses are recorded when they are incurred
 Outstanding expenses, prepaid expenses, accrued incomes and pre-
received incomes get reflected in the financial statements.
 Operating result is determined by matching expenses incurred against
incomes earned.
 The proper financial position of the organization gets reflected through the
Balance Sheet.
3. Hybrid Basis of Accounting:
 Transactions are recorded on mixed basis.
 Incomes are recognized and recorded when they are actually received in
cash i.e., cash basis
 Expenses are recorded when they are incurred i.e., on accrual basis
 Outstanding expenses and prepaid expenses get reflected in the financial
statements, but accrued incomes and pre-received incomes do not get
recognized therein.
 Assets are recognized in the books as and when they are owned,
irrespective of the fact whether entire payment has been made or not.
 Liabilities get recognized on their incurrence.
 It considers the recording of inventories and payables in the financial
statements.
**Questions:
1. What are the features of different basis of accounting?
2. Difference between cash basis and accrual basis of accounting