Bases of Accounting
,Introduction :
One of the main objectives of accounting is to ascertain the profit or loss of
business enterprise at the end of an accounting period. There are two bases
ascertaining profit or loss, namely (1) Cash Basis, and (2) Accrual Basis.
(1) Cash Basis of Accounting: Under this basis, incomes are not recorded un
are received in cash. Similarly, expenses are recorded only when they are pa
cash. In other words, credit transactions are not recorded at all and are igno
cash is actually received or paid for them. Thus profit is merely the excess o
cash receipts in respect of sale of goods and other incomes over actual paym
respect of purchase of goods, expenses on wages, salary, rent etc. Income o
calculated with the help of a Receipts and Payments Account. This basis is u
professional people like lawyers, doctors, chartered accountants etc.
, Advantages
(i) This basis is simple, realistic and satisfies the conservative instinc
many people.
(ii) It does not require the use of estimates and personal judgements.
(iii)It is suitable for those enterprises where most of the transactions a
cash basis.
,Introduction :
One of the main objectives of accounting is to ascertain the profit or loss of
business enterprise at the end of an accounting period. There are two bases
ascertaining profit or loss, namely (1) Cash Basis, and (2) Accrual Basis.
(1) Cash Basis of Accounting: Under this basis, incomes are not recorded un
are received in cash. Similarly, expenses are recorded only when they are pa
cash. In other words, credit transactions are not recorded at all and are igno
cash is actually received or paid for them. Thus profit is merely the excess o
cash receipts in respect of sale of goods and other incomes over actual paym
respect of purchase of goods, expenses on wages, salary, rent etc. Income o
calculated with the help of a Receipts and Payments Account. This basis is u
professional people like lawyers, doctors, chartered accountants etc.
, Advantages
(i) This basis is simple, realistic and satisfies the conservative instinc
many people.
(ii) It does not require the use of estimates and personal judgements.
(iii)It is suitable for those enterprises where most of the transactions a
cash basis.
