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The Use of Cash Basis and Accrual Basis in Assessing the Performance of Enterprise

Journal: Oblik i finansi (Vol.1, No. 73)

Publication Date:

Authors : ; ;

Page : 16-20

Keywords : going concern; accrual; cash basis; profit/loss on sales;

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The accrual basis is commonly used to measure the business performance in accounting. The cash basis is applied for the preparation of cash flow statements. However, if an enterprise applies the going concern principle, we face the question whether the performance calculated on the accrual basis is sufficient to follow that principle. The problem that arises relates to the formation of the differences between the result of the entity calculated of using the accrual and cash basis. It is a question of whether the introduction of accrual accounting principles as the parent principle may present the financial situation of the company in a better light. This paper presents an attempt to establish the profit/loss on sales of a limited liability company on the accrual and cash basis. As it results from the calculations, there are discrepancies between the revenues and costs established on the accrual and cash basis, which lead to a difference in the performance calculated using both methods. The cash-based performance was lower than the “paper” performance calculated using the accrual method.

Last modified: 2016-11-18 00:28:04