Two primary accounting methods, cash and accrual basis, and their combination, called modified cash basis, are used in recording of financial transactions in bookkeeping in order to measure net income of companies for a specified time interval (accounting period). Both methods differ on recognition of company's revenues and expenses leading to varying income recordings, which may be subject to error or — manipulation. Many financial scandals involved accounting manipulations.
Cash basis is a method of accounting ("cash accounting") whereby cash flow of financial events is considered. The method recognizes revenues when cash is received and recognizes expenses when cash is paid out. In cash accounting, revenues and expenses are also called cash receipts and cash payments respectively.
Cash basis does not recognize promises to pay, expectations to receive money, or services in the future, such as payables of accounts payable, receivables of accounts receivable, or prepaid or accrued expenses.
Cash accounting is simplest for individuals and organizations, which do not have significant number of such transactions, or when the time lag between the initiation of the transaction and the cash flow is very short.
Cash accounting is generally not acceptable for companies that must make their financial statements publicly available. That is because most countries require companies to use accrual accounting. Cash accounting is not considered to provide a true and fair view of the financial performance and position of an entity under IFRS.
Additionally, cash accounting is not viable for cost accounting in manufacturing operations, because expenses cannot always be correctly associated with product costs.
Accrual basis is a method of accounting ("accrual accounting") whereby economic activities (rather than cash flow) of financial events are considered, because of two complementary principles, which (together) determine the point, at which expenses and revenues are recognized. According to revenue recognition, revenues are realized and earned, whether or not they are received in cash. Jointly, according to matching principle, incured expenses are matched to related (recognized) revenues, whether or not such expenses are actually paid in cash. Accrual accounting is required by US GAAP (Generally Accepted Accounting Principles), IFRS (International Financial Reporting Standards), and legislation such as the UK’s Companies Act 1985.
Modified cash basis
Unlike strict cash basis, which follows exactly cash flow, the modified cash basis method uses additionally accrual accounting for long-term assets, such as inventory and property capitalization. The term cash basis usually means modified cash basis, whereas only cash - strict cash basis.
Further information: Comparison of Cash Method and Accrual Method of accounting
* By cash method, income and expenses are recognized only, when cash is received or paid out.
* By accrual method, receivables and payables are recognized, as they are earned and incurred (goods or services are sold) even, if as yet cash has not been received or paid out.
* Cash accounting defers all credit transactions to a later date. It is more conservative for the seller, since it does not record revenue until the cash receipt. In a growing company, that results in a lower income compared to accrual accounting.
A simple example
* A small business such as a fruit stand, which buys its inventory daily for cash at a wholesale market, sells the inventory for cash, and throws away what didn't sell, can get an accurate picture of its profits or losses using cash accounting.
* A remodeling business that gives customers 90 days to pay and that procures materials on account at the lumber yard, must use the accrual accounting to gain an accurate picture of its financial condition.
* Either business will probably get a relatively accurate picture using either method over a long period of time, except for the transactions that have already begun and are not yet closed.
Standard accrual basis financial statements (income statements and balance sheets) do not indicate the cash inflow and outflow of a company. The cash flow statement is created to indicate such information for accrual accounting.
Accrual accounting tended to be far more costly to maintain than cash basis, because it requires the bookkeeper to record many more transactions. However, the advent of accounting software has made the difference between the reporting methods less significant.
Companies, which have extended credit or employ it significantly, are advised (and in the United States may be required by Internal Revenue Service) to use the accrual accounting. The U.S. Securities and Exchange Commission requires the publicly traded companies to follow GAAP, thus all of them publish their financial statements by accrual basis.
Cash accounting is highly favored for tax purposes, since it defers tax burdens until the cash is received and it also provides for automatic bad debt relief, because revenue (and therefore profit) is not recorded until cash is received from the debtor. It is often used by small businesses and organizations that are not required to use the accrual basis for both tax reasons and simplicity.
1. ^ IASB International Accounting Standard 1, paragraph 8
Versi Indonesianya kurang lebih begini:
Accrual basis dan cash basis adalah dasar akuntansi yang sangat berpengaruh pada laporan keuangan baik itu laba rugi, perubahan modal serta neraca, karena jika yang digunakan dasar accrual atau “akrual basis” maka akuntansi akan mencatat transaksi disaat transaksi tersebut terjadi, sehingga jika perusahaan menerima order dari penjualan produk nya, maka kegiatan itu akan langsung dicatat tanpa melihat apakah perusahan telah menerima pembayaran dari transaksi penjualan tersebut yang tentu akan menambah jumlah piutang usaha. Hal ini berlaku pada semua transaksi tanpa terkecuali, contoh lainnya perusahaan membeli mobil operasional meskipun pengeluaran kas belum terjadi pencatatan terhadap kegiatan keuangan tersebut tetap dilakukan sehingga akan berpengaruh pada bertambahnya utang usaha.
Sedangkan dasar tunai atau “cash basis” akan mencatat kegiatan keuangan saat kas atau uang telah diterima misalkan perusahaan menjual produknya akan tetapi uang pembayaran belum diterima maka pencatatan pendapatan penjualan produk tersebut tidak dilakukan, jika kas telah diterima maka transaksi tersebut baru akan dicatat seperti halnya dengan “dasar akrual” hal ini berlaku untuk semua transaksi yang dilakukan, kedua teknik tersebut akan sangat berpengaruh terhadap laporan keuangan, jika menggunakan dasar akrual maka penjualan produk perusahaan yang dilakukan secara kredit akan menambah piutang dagang sehingga berpengaruh pada besarnya piutang dagang sebaliknya jika yang di pakai cash basis maka piutang dagang akan dilaporkan lebih rendah dari yang sebenarnya terjadi
Dasar akrual dan tunai akan sangat berpengaruh pada informasi yang dihasilkan oleh laporan keuangan ini disebabkan karena berpengaruh juga pada pencatatan transaksi sebagai salah satu elemen pembuatan laporan laba rugi, laporan perubahan modal dan neraca serta catatan akuntansi yang lainnya yang akan terpengaruh oleh kedua dasar yang digunakan, akrual dapat menyajikan laporan yang lebih sesuai dibanding dasar tunai sehingga sebaiknya menjadi pilihan yang baik untuk di gunakan sebagai dasar akuntansi sebuah organisasi, baik yang bertujuan untuk mencari laba ataupun tidak