Cash to Accrual Basis of Accounting
Cash Basis of Accounting
- Recognizes revenue when cash is received
and recognizes expenses when cash is
paid, regardless of when the transaction
happened.
Accrual Basis of Accounting
- Recognize revenue when the service is
rendered or goods are sold and recognizes
expenses when incurred, regardless of
when the cash will be received or paid.
General Features
1. Pure cash basis
- Purely based on cash investments.
- Revenue is recorded when cash is received.
- Expenses is recorded when cash is paid.
- There is no capitalization of long-term assets.
- No depreciation or amortization of long-term
assets.
2. Modified Cash Basis
- Purely based on cash movements on revenue and
expenses.
- Revenue is recorded when cash is received.
- Expenses is recorded when cash is paid.
- Resources that can benefit the entity in more than
one period are capitalized.
- Long term assets are depreciated or amortized.
3. Accrual Basis
- Revenue is recorded a the time of the transaction.
- Expenses are recorded when incurred.
- Revenue and expenses are recorded regardless
of the time of cash receipt or payment.
- Allows recording of receivables and payables.
- Recognizes the need for recording of
prepayments, deferrals, accruals, depreciation, and
amortization which require adjustments at the end
of the accounting period.
Conversion from Cash Basis to Accrual Basis
According to IAS 1: Presentation of FS
- An entity shall prepare its financial
statements, except for cash flow
information, using the accrual basis of
accounting.
- The recognition principles and criteria set
forth in the Conceptual Framework for
-
Financial Reporting re based strictly on the
accrual basis of accounting.
An entity that utilizes the cash basis of
accounting in their records should be able to
prepare financial statements under the
accrual basis of accounting.