TIMES BANYUWANGI, PADANG – In accounting, there are two methods for recording financial transactions in financial statements. The methods that companies can use to prepare their financial statements consist of the cash basis recording method and the accrual basis recording method. The use of these two financial transaction recording methods is regulated by the government in the law.
Based on Government Regulation Number 24 of 2005, it is stipulated that the use of the recording method must be cash-based and gradually use the accrual-based recording method, while upon the enactment of Government Regulation Number 71 of 2010, it is stipulated that the recording method must be fully accrual-based. What are the differences between the cash basis recording method and the accrual basis recording method? Let’s discuss below.
The cash basis recording method is the recording of financial transactions that are recognized when cash receipts and cash disbursements occur. In the cash basis recording method, revenue is recognized when cash is received, and expenses are recognized when cash is paid.
This method is simpler and easier to understand because transactions are only recognized when there is a transfer of cash from one hand to another. This method also clearly illustrates the company's liquidity because it shows the actual cash flow. Besides, this method is easier to use for small companies that do not have many credit financial transactions.
The accrual basis recording method is fundamentally different from the cash basis recording method. In the accrual basis recording method, transactions are recognized when they occur regardless of whether cash has been paid or received. Revenue is recognized when the transaction occurs without considering whether cash has been received, and expenses are recognized when the transaction occurs without considering whether cash has been paid.
This method provides a more comprehensive picture of the company's financial condition and performance because it records all debts and receivables. The accrual basis recording method is more suitable for companies with many credit transactions and requires external audits in assessing their financial statements.
As a comparison of the use of the accrual basis recording method and the cash basis recording method, here is an example transaction: when a company receives payment from a customer in January for services provided in November, the revenue will be recorded in January if using the cash basis recording method. Meanwhile, in the same situation, the revenue will be recorded in November when the service is provided, even though the payment is received in January.
There are pros and cons to each of the cash basis recording method and the accrual basis recording method. The disadvantage of the cash basis recording is that it does not provide a complete picture of the company's debt and receivables condition, while the disadvantage of the accrual basis recording is that it requires periodic account adjustments.
Besides, the advantage of the cash basis recording method is that it is simple, easy to understand, and illustrates the actual cash flow, while the advantage of the accrual basis recording is that it provides a more accurate picture of the company's financial performance and position. (*)
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*) Oleh : Silmi, S.E., M.Ak., Dosen PNS Akuntansi Fakultas Ekonomi dan Bisnis, Universitas Andalas.
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Artikel ini sebelumnya sudah tayang di TIMES Indonesia dengan judul: Cash Basis Accounting Vs Accrual Basis Accounting
Pewarta | : Hainorrahman |
Editor | : Hainorrahman |