Scenario Analysis No. 3 – Accrual Accounting

There is confusion on what is the meaning of “accrual accounting” at the seminar. Accrual accounting simply highlights the difference in timing when business is conducted on accrual basis.

For example, the date when revenue for the business is recognised and later on the date when cash is received for the revenue.

Before cash is received, the business shall show a receivable amount.

sa-no-3

Similarly, for the difference in dates for expense and later on for cash payment. Before cash is paid, the business shall show a payable amount.

The impact to business in accrual accounting method is that sales is not cash until the cash is collected from customer! The cash is not available to the business until the customer pays.

The alternative to accrual accounting is “cash accounting”.**

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