91Ó°ÊÓ

Accounting is defined as the process of determining a company's transactions and supplying information about its financial position to its potential users. This is particularly useful for identifying information for each transaction.

In the cash basis of accounting, revenue is recognized only when there is a cash receipt, and expenses are listed only when disbursed. On the other hand, in the accrual basis of accounting, revenue is realized when a performance liability is fulfilled, and expenses are listed when incurred without considering the time of receipt or cash disbursement.

A cash-basis balance sheet and income statement are insufficient and incorrect relative to accrual-basis accounting statements. The accrual-basis equalizes the expenses and revenues in the income statement, while the cash-basis only indicates the cash receipts and payments. The accrual-basis balance sheet comprises accruals, deferrals, receivables, payables, and prepayments; on the other hand, a cash-basis balance sheet does not reflect any of these. Therefore, the accrual basis of accounting is usually preferred by businesses over the cash-basis.