There are three (3) basis of accounting and they include:
1. Accrual basis
2. Cash Basis
3. Break-up Basis
1. ACCRUAL BASIS: The accrual basis of accounting recognises transaction in the period they occur even if the resulting cash receipts and payments occur in a different period.
For Example: If a good is sold on credit. The transaction is recognized as soon as the transaction occur and not when payment for the goods is made.
2. CASH BASIS: The cash basis of accounting recognises transaction in the period at which cash receipt and payment occur.
Example: A product is sold on credit for ₦5,000 in December 2018 but payment was made in October 2019, the transaction will be recognised to have taken place in October 2019 using the Cash Basis.
3. BREAK-UP ANALYSIS: The break-up basis is used when the business is no longer a going concern. This basis resulta in all assets and liabilities being measured at the amount of cash they can be sold for (asset) or settled (in the case of liabilities)
Key Points to Note
a) Both Accrual and Cash basis assumes the business is a going concern but Break-up basis is used when the business is no longer a going concern
b) Both Accrual and and Cash basis records the same amount but in different period
There are three (3) basis of accounting and they include:
1. Accrual basis
2. Cash Basis
3. Break-up Basis
1. ACCRUAL BASIS: The accrual basis of accounting recognises transaction in the period they occur even if the resulting cash receipts and payments occur in a different period.
For Example: If a good is sold on credit. The transaction is recognized as soon as the transaction occur and not when payment for the goods is made.
2. CASH BASIS: The cash basis of accounting recognises transaction in the period at which cash receipt and payment occur.
Example: A product is sold on credit for ₦5,000 in December 2018 but payment was made in October 2019, the transaction will be recognised to have taken place in October 2019 using the Cash Basis.
3. BREAK-UP ANALYSIS: The break-up basis is used when the business is no longer a going concern. This basis resulta in all assets and liabilities being measured at the amount of cash they can be sold for (asset) or settled (in the case of liabilities)
Key Points to Note
a) Both Accrual and Cash basis assumes the business is a going concern but Break-up basis is used when the business is no longer a going concern
b) Both Accrual and and Cash basis records the same amount but in different period