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What is the difference between cash and mercantile system
of accounting? Which according to you is a better system &
why?
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Answer Posted / saurabh goel
#
Cash Basis Accounting
Under cash basis accounting revenues are recognized and
earned only when cash is received irrespective of when and
how the services were performed or goods delivered.
To put it in different terms, the cash basis of accounting
asks you to take into consideration all those incomes/gains
that have been received in cash or other assets and
expenses/losses that have been paid out in cash or other
assets during the accounting period in consideration.
#
Accrual or Mercantile Basis Accounting
Under accrual or mercantile basis accounting, revenues are
recognized and earned when they are realized or realizable
irrespective of when the cash is received.
To put it in different terms, the accrual basis of
accounting asks you to take into consideration all those
incomes/gains and expenses/losses pertaining to the
accounting period for which you are trying to ascertain the
profits and losses irrespective of whether the incomes are
received in cash or not and the expenses are paid out in
cash or not.
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