The basis of accounting is a base for accounting work and it is a very important element for accounting work because it tells when to do the accounting work of a transaction or when to enter the transaction in the books and for this it provides three types of basis, first accrual basis, second cash basis and third hybrid basis which is also known as types or classification of the basis of accounting.
It is selected before starting the accounting work so that accounting work can be done according to the selected basis. Any business can start accounting work by selecting a one basis. Note: Each basis has its own features due to which they differ from each other and which basis to use depends on the business and its nature.
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Classification of Basis of Accounting
The classification of basis of accounting is described below:
| Classification of Basis of Accounting | – Accrual Basis – Cash Basis – Hybrid Basis |
1. Accrual Basis:
Accrual basis is the most commonly used basis in accounting and in this the transaction is recorded when the transaction occurs and both cash transactions and credit transactions are recorded. For example, if a credit sale is made on 14.07.2024, the sale will be recorded on 14.07.2024 even if the payment is received later. In simple words, the transaction will be recorded in the accounting book on the day it occurs, whether it is credit or cash.
| Accrual Basis: A transaction is recorded when it occurs. |
2. Cash Basis:
Cash basis is the most commonly used basis after accrual basis and in this, the transaction is recorded when the cash is paid or received. Credit transactions are not recorded as its principle is based on cash. For example, if a credit sale is made on 14.07.2024 and payment is received on 15.07.2024, the sale will be recorded in the books on 15.07.2024. In simple language, it does not matter when the transaction takes place, it matters when the cash is received or paid.
| Cash Basis: A transaction is recorded when cash is received or paid. |
3. Hybrid Basis:
A hybrid basis is a mixture of accrual basis and cash basis; hence it is also called mixed basis of accounting. According to this, both bases can be used for accounting work. Generally, the businesses that use it record the transactions related to expenses on an accrual basis and record the income on a cash basis. This basis is used very rarely because it is not helpful in preparing financial reports.
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QNA/FAQ
Q1. When are transactions recorded in the books as per accrual basis?
Ans: As per accrual basis, the transactions are recorded in the books on the date the transaction occurs.
Q2. Hybrid base is also known as what?
Ans: A hybrid basis is also known as a mixed basis.
Q3. When are transactions recorded as per cash basis?
Ans: Under the cash basis, transactions are recorded when cash is received or paid.
Q4. Is cash basis of accounting based on cash?
Ans: Yes, the cash basis of accounting is based on cash.
Q5. Does cash basis also record credit transactions?
Ans: No, cash basis does not record credit transactions as it is based on cash.
Q6. Into how many parts is the basis of accounting classified?
Ans: The basis of accounting is classified into three parts:
1. Accrual Basis
2. Cash Basis
3. Hybrid Basis
