Accrual Basis and Cash Basis

Recording in accounting are generally based on two systems namely cash basis and accrual basis.Cash basis is the technique of recording when a transaction occurs where the money actually received or released.

Accrual basis of recording is a technique where the transaction has been recorded because such transactions can have implications for the money in or out in the future. Transactions are recorded when incurred even if the money has not actually received or released.

In the world of accounting, accounting base became an important foothold in the recording. Basis of accounting determines the assumptions used in recording and reporting.

In the accrual basis of accounting, revenue is recognized when the sale occurs and expenses (expenditure) is recognized when goods or services have been received. In other words, the accrual basis recognizes transactions in the event. While the cash basis, revenue is recognized when cash / money has been received and expenditures are recognized when cash payments have been made. In addition, the accrual basis as well acknowledged the existence of transactions of non-cash, such as the recognition of depreciation expense, allowance for doubtful accounts, and so on.

International Public Sector Accounting Standards (IPSAS) Board (IFAC, 2003: page 7) provides conclusions about some of the advantages of applying the accrual basis of accounting and preparing financial statements in the public sector, namely:

• Accrual basis to show how the government financed its activities and meet its cash needs
• Accrual basis allows readers of financial statements to evaluate the government's ability to finance its activities and to fulfill the obligations and commitments
• Accrual-based accounting shows the financial position / wealth of government and changes to the financial position of the
• Provide an opportunity for the government to demonstrate success managing resources
• Useful in evaluating the performance of government through service cost, efficiency, and achievement of performance

Indonesia itself in the next few years will implement the accrual basis of accounting in government. This step has been initiated with the use of cash-based accounting modification that replaces the cash basis

Accrual Basis Concept  based on two pillars, namely:

1. Revenue recognition, when recognition of revenue on the accrual basis when the company has the right to collect from the company's activities. In the concept of accrual basis becomes less important regarding when the cash actually received. So then comes the accrual basis of estimated uncollectible accounts, because income is recognized when cash has been received.

2. Recognition of fees, admission fees when done at the time the obligation to pay has occurred. So in other words, when the obligation to pay has occurred, then this point can be considered as a starting point the emergence of cost although this charge has been paid. In today's era of business, the company has always claimed to always use the accrual basis of this concept.

In the cash basis method, revenue is recognized when cash is received, while expenses are recognized when cash is paid, meaning the company recorded expenses in the transaction journal entry when the cash issued or paid and revenues are recorded when cash is entered or accepted.
In the cash basis method of load is not recognized until the money is paid even if the load happens occurs in that month. Likewise, the income, not recognized until cash is received. So the cash basis method does not reflect the money that is actually.

Cash Basis Concept is also based on two pillars:

1. Revenue recognition, when recognition of revenue on cash basis when the company was receiving payments in cash. In cash basis concept becomes less important regarding when the emergence of the right to collect. Hence the cash basis method of removal later emerged the receivables directly and did not know of any estimate of uncollectible accounts.

2. Recognition of costs, when admission fees are done at the time payment is made in cash. So in other words, when the payment has been received then the cost has been recognized at that time. For certain businesses still use a cash basis rather than accrual basis, ie relatively small businesses such as stores, shops, malls (retail) and the practice of specialists such as doctors, informal traders, massage parlors (there are even a disposable credit card-but remember credit cards are also categorized as a cash basis).