Basis of Accounting
Cash basis: Under this system, Revenue is recognised only when cash is received and expenditure incurred is recorded.
For e.g. Salary Rs.1000 P.M. Paid 6 month of salary.Therefore, Salary includes Rs.6000 in the profit and loss account
No outstanding or prepaid expenses to be adjusted.
Accrual Basis: Under this system, revenue and expenditure is recognized during the period in which they occur rather than when they paid.
For e.g. Salary Rs. 1000 p.m. Paid 6 months of salary.
Salary Paid - 6,000 + O/S salary 6,000 =12,000