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Cash Basis Vs Accrual Basis

This document compares and contrasts cash basis and accrual basis accounting. Accrual basis accounting records transactions when they occur regardless of whether cash has been received or paid, allowing for a more accurate picture of revenues and expenses. However, it provides more opportunities for manipulation. Cash basis accounting only records revenues and expenses when cash is actually received or paid, making it a simpler method but less accurate. The document provides examples to illustrate the differences between the two methods.

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Shavitri Rahma
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73 views15 pages

Cash Basis Vs Accrual Basis

This document compares and contrasts cash basis and accrual basis accounting. Accrual basis accounting records transactions when they occur regardless of whether cash has been received or paid, allowing for a more accurate picture of revenues and expenses. However, it provides more opportunities for manipulation. Cash basis accounting only records revenues and expenses when cash is actually received or paid, making it a simpler method but less accurate. The document provides examples to illustrate the differences between the two methods.

Uploaded by

Shavitri Rahma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Basis of

Accounting
CASH BASIS vs ACCRUAL BASIS
Group 3 :
• Miftahul Jannah
• Muhammad Nadhif P.U
• Shavitri Rahmatullaili
• Thania Ayu Safira M.
Definition
 The basis of accounting
refers to the
methodology under
which revenues and
expenses are recognized
in the financial
statement of a company.
 In general, there are two
types basis of accounting
:
1.
Accrual-Basis
Accounting
crual-Basis Accounting

Accrual basis is the process of recording


accounting transactions when transactions
are recorded when they occurs even though
cash has not been received or issued.
crual-Basis Accounting
vantages
• Can be used as a benchmark for capital.
• Receipts and expenses in operational
reports have relations with their revenue
and income.
• It is easier to measure assets, liabilities,
and equity.
• The information provided is far more
accurate, this is because in each
crual-Basis Accounting
sadvantages
• The opportunity for money manipulation is
difficult to control.
• Costs that have not bee paid in cash, will be
recorded effectively as a cost so it can
reduce the company’s income
• Has a risk of income that cannot be
collected.
• The company does not have the estimation
Example
1. On May 5, 2016, service work was
completed with customers and received
wages for the workmanship in the
May 05, 2016 period
following on June 6, 2016
Accounts Receivable 5,000,000
amounting to Rp. 5,000,000.
           Service Revenue of 5,000,000

June 06, 2016


Cash 5,000,000
        Service Revenue of 5,000,000
Example
2. On January 1, PT. X pays building rent of
2,000,000 for 2 months, then on the date
concerned PT. X will journalize:
Prepaid Rent exp. 2,000,000
               Cash    2,000,000
2
Cash-Basis
.
Accounting
ash-Basis Accounting
 Cash basis accounting is an accounting system
that recognizes and records revenues and
expenses in the period in which they are
actually received or paid.
 The cash basis is a more simple accounting
system than the accrual basis.
sh-Basis Accounting
vantages
• Cash basis method is used for recording income,
expenditure and financing recognition
• It does not cause a reduction in the income
calculation
• Revenue is recognized when cash is received
• Cash receipts are usually recognized as income.
• The financial report presented shows the
financial position that existed at the time of the
report
Cash-Basis Accounting
Disadvantages
• The base cash method does not reflect the
amount of cash available.
• Will be able to reduce the bank's income
calculation
• Difficult in conducting transactions pending
payment
• It is difficult for management to determine a policy
going forward
• Usually used by companies whose businesses are
Example
Eystone Company sold 1,000 widgets in
December for $1,000 each and its customers
usually take 60 days to pay for their widgets.
Eyestone Company used cash basis
accounting. So, it would record $0 of
revenues in December, $0 in January, and
$1,000 x 1,000 = $1,000,000 in February.
Conclusion
Individuals and some
small companies do use
cash-basis accounting.
The cash-basis is justified
for small businesses
because they often have
few receivables and
payables. Medium and
Thanks!
Any questions?

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