An entity can record the transactions under two methods:
Cash basis
Under the cash basis, transactions and other events are recognized when cash or its equivalent is received or paid. Revenue is recognized and recorded when cash is received and expense is recognized and recorded when cash is paid. Both revenue and expense are reported during the period to which they received and paid.
The cah basis is simple, since the transactions are recorded based on actual cash flow (in/out). This method is applied suitably for the small or cash based company.
Accrual Basis
Under the accrual basis, transactions and other events are recognized when they occur (and not as cash or its equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate. Financial statements prepared on the accrual basis inform users not only of past transactions involving the payment and receipt of cash but also of obligations to pay cash in the future and of resources that represent cash to be received in the future. Hence, they provide the type of information about past transactions and other events that is most useful to users in making economic decisions.
IFRS-Framework require the accrual basis to be applied to in order to meet the objective of financial statement.
IFRS-Framework require the accrual basis to be applied to in order to meet the objective of financial statement.
Related Post : |
No comments:
Post a Comment