Question

Respond to the following in a minimum of 125 words:

What are the accounting differences between cash and receivables from the perspective of a buyer? A seller? How does the accounting basis (cash vs. accrual) an organization chooses change these differences?

Answer 1

BUYER PERSPECTIVE -

Cash is the amount of money in hand that can be used for operating expenses. For a buyer cash is important to make payment to the sellers who don't offer any credit period or for meeting day to day expenses. The payment to sellers also depend on the payment a buyer receives from ahead after selling his product.

Cash and receivables do go hand in hand and also depend on each other.

SELLER PERSPECTIVE -

Cash in hand is very necessary to pay for day to day expenses but a selling business only grows if various credit schemes are offered to buyers. Receivables are the payments that are allowed to be made to you later whereas the goods are delivered today. Receivables are also treated as asset in balance sheet.

Receivables convert themselves into cash in a later stage of time when payment is received.

Accounting basis (cash vs. accrual) an organization chooses tells the timings of recording sale and purchase in the books of accounts. Cash basis of accounting records sale when cash is received or paid and not when the billing is done whereas in accrual basis of accounting, recording is done when goods are billed and does not depend on whether they are received or not i.e. sale is recorded when its earned. Small businesses use cash basis whereas big businesses use accrual basis of accounting. In cash basis sale is recorded in the time when payment is received whereas in accrual basis sale is recorded when goods are transferred irrespective of the payment received or not.