AASI: Cash and Accrual Basis

Cash Basis Accounting

Cash basis accounting is a system that recognizes revenue
when cash is received and expenses when cash is paid.
Accrual Basis Accounting
It is an accounting system that recognizes revenue when
earned rather than when cash is received and recognizes expenses
as it is incurred rather than when cash is paid.
Comparison of Cash Basis and Accrual Basis Accounting

Item of Cash Basis Accrual Basis

Comparison

Sales Includes: Cash sales, Collection Includes: Cash sales, Credit sales
of trade AR, Collection of trade (sale account)
NR

Income other Includes only those collected Includes those items earned during
than sales during the period the period

Purchases Includes: Cash purchase, Includes: Cash purchases,

Payment of trade AP, Payment Purchase on account
of trade NP, Payment in
advance to suppliers I

Expenses. in Includes only those expenses Includes those items that are
general that are paid incurred regardless of when paid

Depreciation Depreciation is typically Depreciation is typically provided

provided except when the cost
of equipment was treated as
expense

Bad debts No bad debts expense is Doubtful accounts are treated as

recognized since cash basis bad debts
does not recognize receivables.

T Accounts Approach