Difference Between Cash and Accrual Basis of Accounting
Basis |
Cash Basis of Accounting |
Accrual Basis of Accounting |
---|---|---|
Recognition of Revenue |
Recorded when cash is received. | Recorded when revenue is earned. |
Recognition of Expenses |
Recorded when cash is paid. | Recorded when expenses are incurred. |
Timing |
Short-term focus. | Long-term focus. |
Financial Reporting |
May does not provide a true picture of financial health. | Presents a more accurate financial position. |
Example |
A retail store records sales when customers pay in cash. | A consulting firm recognizes revenue when it completes a service, regardless of when the client pays. |