What is the basis of accounting?

Definition of Basis of accounting

There are two basis of accounting:

The basis of accounting will indicate when transactions are recognized for tax and accounting purposes.

1) Accural Accounting

Income and Expenses are recognized immediately on purchase or transaction date. This is the longer term view of the entity's liquidity

2) Cash accounting

Income and expenses are recognized when cash is actually received or paid. This is the short-term analysis and view of the entity's liquidity.

Accrual Accounting is the most commonly followed basis of accounting.

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