BASES OF ACCOUNTING— CASH BASIS, ACCRUAL BASIS:

1. Cash Basis of Accounting:– It is a system in which transactions are recorded when cash is received or paid, i.e., entry is not recorded when a payment or receipt is merely due. It means, revenue is recognised on receipt of cash and expenses are recorded as incurred when they have been paid.

2. Accrual basis of Accounting:- Under accrual basis, income is recorded as income when it is earned or accrued. 

For example, credit sale is recognised as sale irrespective of the fact whether amount has been received or not.

Similarly, if an expense has been incurred but payment has not been made, it will be recorded as an expense. 

For example, rent for the month of March 2021 has not been paid. It will still be recorded as an expense because it had become due.