What is Difference between Accrual Basis Accounting & Cash Basis Accounting?

Answer:

Accrual Basis Accounting

Ø  In accrual basis accounting, income is reported in the fiscal period when it is earned, regardless of when it is received, and expenses are deducted in the fiscal period when they are incurred, whether they are paid or not.

Ø  In other words, using accrual basis accounting, we record both revenues and expenses when they occur.

Cash Basis Accounting

Ø  Revenue recognition: Revenue is recognized when cash is received.

Ø  Expense recognition: Expense is recognized when cash is paid.