Cash Accounting vs Accrual Accounting

Difference Between Cash and Accrual Accounting

In cash accounting, the business will record transactions only when there is a cash inflow or a cash outflow. However, in accrual accounting, revenue is recognized when a sale is completed (cash or credit sale), and costs are matched and recognized concurrently with the associated revenue (regardless of when the expense is paid).

Cash-Accounting-vs-Accrual-Accounting

Cash Accounting vs Accrual Accounting Comparison.

Basis for ComparisonCash AccountingAccrual Accounting
MeaningIn cash accounting, incomes and expenses are only recognized through cash.In accrual accountingAccrual AccountingAccrual Accounting is an accounting method that instantly records revenues & expenditures after a transaction occurs, irrespective of when the payment is received or made. read more, incomes and expenses are recognized when they are done (on the mercantile basis).
IncludesOnly cash expenses, cash incomes.All expenses and all incomes;
Nature Simple and easy to understand.Complex and difficult to understand.
How is accounting done? When cash is received or paid;When revenue is earned, or loss is incurred.
FocusLiquidity.Revenue/Expense/Profit/Loss.
Why useful?We can quickly get how much cash the business generated (i.e., net cash flow).We can understand how much profit or loss a business has made during a particular period.
Holistic in approachNo, because it only talks about cash.Yes, because it includes all of the transactions.
Which one is more accurate?Accuracy of cash accounting is doubtful since it doesn’t take every transaction into accounting.It is a more accurate method of accounting.

Cash Accounting vs. Accrual Accounting Infographics

Let’s see the top differences between Cash vs. Accrual Accounting.

Cash Accounting vs Accrual Accounting Infographics

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Source: Cash Accounting vs Accrual Accounting (wallstreetmojo.com)

Key Differences

You may ask why most businesses don’t use cash accounting and only use accrual accounting. Very recently, Biocepts transitioned from Cash Accounting to accrual accounting as they believed it is a more timely reflection of revenues associated with test volumes as well as revenues and expenses.

Accrual Accounting - Biocepts

source: prnewswire.com

Let us now look at some important differences –

Video on Cash Accounting vs. Accrual Accounting

Recommended Articles

This has been a guide to cash accounting vs. accrual accounting. Here we discuss the top differences between cash accounting and accrual accounting with infographics and comparative table. You may also have a look at the following articles for further learnings in accounting –