Cash Method Vs. Accrual Method Accounting
Cash Method Accounting vs Accrual Method Accounting:
In the Cash based accounting system, a transaction will be recorded only when money is transferred.
And in accrual method of accounting, the revenue and expenses are recorded, when the transaction happens. Cash does not need to be exchanged between the parties.
For example, if you received the raw materials for your product last year, but you didn’t have the money to pay for it unless you sold your own finished goods. You end paying paying back for that this year.
In the cash accounting method, the expense will be recorded in this year.
But in the accrual accounting method, the expense was to be recorded right when you received the raw materials.
In comparison, accrual method is mostly considered to be the superior one since we can see the accounts receivables and the payables as well and understand where the company really stands.
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