A Comparison Between Cash Accounting and Accrual Accounting

1110 WordsNov 24, 20125 Pages
A COMPARISON BETWEEN CASH ACCOUNTING AND ACCRUAL ACCOUNTING 1. Introduction Accounting principle and theory are generally referred to two main accounting methods which include cash accounting and accrual accounting. Cash basis accounting on income and cost is determined by the amount of actual payment for reference and accounting recording mode is simple, easy to master. The use of the accrual basis of accounting is more complicated than it with a main difference of recording timing. This essay will firstly separately discuss related conception and theory of cash and accrual accounting. Following this, it will explain the advantages and disadvantages of those two dealing method. Finally, it will offer two examples to describe…show more content…
The business is continuous, accrual accounting can more accurately reflect actual financial situation and management performance during the specific business accounting period. Two parts shown as follows to describe the weakness of accrual accounting: Firstly, profitability aspect-the accrual basis gives a confirmation to some uncollected income. Such income is an imaginary number with some risks; Secondly, a portion of sales income in the currency can not be received and a confirmation is authorized in this situation, it will be having impact on taxation, distribution and many other aspects to result in bad chain reaction, thereby causing the financial deficiency and income distribution in advance; Furthermore, the accounting period calculation of profit does not have uniform standard for different accounting methods to select and the subjectivity is too strong, easily manipulated by the management authorities; Secondly, liquidity aspect-accrual accounting considers payment, deferred expenses, accounts receivable and inventory as current assets. Obviously, liquidity of those assets is poor, and this makes current assets liquidity enterprise off its real values. In the end,

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