Railway Accounts Department Examinations

Monday, May 20, 2019

Differences between Cash accounting and Accrual Accounting


Differences between
Item
Cash Accounting
Accrual Accounting
1. Basis
Cash is the basis for recognition of Income or expense. That means actual cash received or paid is the basis.
Revenue earned for income and expense incurred is the basis.  That means Cash received or paid is immaterial
2. Nature
Simple
Complex
3. Matching concept
No.
 Example : Advance Rs. one Lakh received in 2018 December, for which service is not delivered in FY 2018-19.  But Rs. One lakh is accounted in Fy 2018-19 as income only, though service is not rendered.  That means Income received, but corresponding expense is not incurred in that particular year. Hence No matching concept.
Yes.  Advance Rs. one Lakh received in 2018 December, for which service is not delivered in FY 2018-19.  Here Rs. One lakh is accounted in Fy 2018-19 as Creditor/Advance income only .  If service delivers in FY 2019-20, advance income shown in 2018-19 FY is adjusted as income earned in the year FY 2019-20.  Because service delivered and income earned are matched in FY 2019-20.
4. Recognition of Revenue
Cash is received
Revenue is earned
5. Recognition of Expense
Cash is paid
Expense is incurred
6. Accuracy
Low
High

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Differences between Single Entry and Double Entry


Differences between
Item
Single Entry
Double Entry
1. Meaning
Accounting system in which only single entry requires for every financial transaction
Accounting system in which two entries requires for every financial transaction.
For every debit, there is equaling credit is posted
2. Nature
Simple
Complex
3. Preferable for
Small enterprises
Big enterprises
4. Preparation of Financial Statements ( such as P & L Account and Balance Sheet)
Difficult
Easy
5. Suitable for Tax purpose
No
Yes
6. Knowledge of Book keeping
Not required
Required
7. Existing from
Since time immemorial
Since 1494 *
8. Detection of errors
Difficult
Easy

* Double entry book keeping was developed by Luca Pacioli, an Italian mathematician.  He is referred as "Father of Accounting and Book Keeping". He described book keeping along with other accounting topics in 9th chapter (150 pages) in his book  "The Summa de arithmetica"
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