Accrual Basis: A process of accounting that recognizes the impact of transactions on the financial statements in the time periods when revenues & expenses occur instead of when cash is received or disbursed is called accrual basis. For example, credit sales for the year 2008 we re $ 2,00,000. Cash collected from the customer during 2008 was $ 1,50,000. In this case credit sales for 2008 should be considered as $ 2,00,000 & not $ 1,50,000. Cash Basis: A process of accounting where revenue & expense recognition would occur when cash is received & disbursed is called cash basis. For instance, a piece of land may have been purchased at $ 1,50,000, whereas the company considers it to be worth $ 3,00,000. The land is recorded in the books of accounts at $ 1,50,000 only.
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