Cash Basis Accounting
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In Cash Basis Accounting, Revenue is recognized (recorded) when cash is received. Expenses are recognized only when cash is paid. It is the accounting system in which revenue and Expenses are recorded when actual cash / cheque is received or paid. The same principle applies for income and other transactions as well i.e. income is recorded when cash is actually received.
No Account Payable or Account Receivable in cash basis accounting. Let’s take the example of utility bills like electricity, telephone etc. The bill of January is received on 5th February and paid on 15th February. If the organization is following cash accounting practice it will record the expense of electricity on 15th February. Cash-basis accounting refers to keeping a record of cash inflows and cash outflows.
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References
Mukharji, A., & Hanif, M. (2003). Financial Accounting (Vol. 1). New Delhi: Tata McGraw-Hill Publishing Co.
Narayanswami, R. (2008). Financial Accounting: A Managerial Perspective. (3rd, Ed.) New Delhi: Prentice Hall of India.
Ramchandran, N., & Kakani, R. K. (2007). Financial Accounting for Management. (2nd, Ed.) New Delhi: Tata McGraw Hill.
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