Homework Answers
1) DIFFERENCE BETWEEN BOTH THE METHODS :
| CASH METHOD | ACCRUAL METHOD | |
| MEANING | IN THIS METHOD, REVENUE/EXPENSES IS REPORTED IN INCOME STATEMENT ONLY WHEN ACTUAL CASH IS RECEIVED/PAID. | UNDER THIS METHOD, REVENUES & EXPENSES ARE RECORDED WHEN EARNED IRRESPECTIVE OF WHETHER CASH IS RECEIVED/PAID OR NOT. |
| PERIOD OF RECOGNITION | REVENUES & EXPENSES THOUGH PERTAINING TO DIFFERENT PERIOD ARE RECORDED IN THE PERIOD OF ACTUAL RECEIPT/PAYMENT OF CASH. | REVENUES & EXPENSES ARE RECORDED IN THE PERIOD IN WHICH ACTUAL TRANSACTION IS EFFECTED. |
| COMPANY'S POSITION | THOUGH TRACKING CASH FLOW IS EASIER ADOPTING THIS METHOD, IT DOES NOT PORTRAY TRUE PICTURE OF COMPANY'S POSITION. | THIS METHOD PROVIDES ACCURATE PICTURE OF COMPANY'S PERFORMANCE & PROFITABILITY OF PARTICULAR PERIOD & RESULTS ARE THUS CONSIDERED TO BE MORE APPROPRIATE. |
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