What is the Difference Between Accrual Accounting and Cash-based Accounting?

Accrual and Cash-based accounting are two different accounting methods that accountants use to prepare financial statements.

They are both perfectly legal and acceptable within International Financial Reporting Standards (IFRS).

So, What’s the Difference?

The major difference between the methods is when Revenues and Expenses are recognized.

Accrual Accounting

In Accrual accounting, revenue is recorded when a sale is made regardless of whether or not cash is received at the time of the sale.

In the same way, Expenses are recorded when goods are purchased and received, regardless of whether the goods have been paid for yet.

Cash-Based Accounting

In Cash-based accounting, Revenue is recorded when cash is received by the business and Expenses are recorded when goods are paid for.

This is the simplest accounting method.

Best Practices

The cash method is used in most small businesses.

The accrual method is more complex and is frequently used in bigger businesses for long-term forecasting for business strategy purposes.

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