In any business, accounting is used to manage the transactions so that the result of the transaction can be obtained but before using accounting, the basis of accounting has to be selected because without selecting the basis of accounting, accounting work cannot be started. Once the basis of accounting is selected, accounting work is done accordingly.
A business can choose any basis of accounting for accounting work as per its convenience and can do the accounting work accordingly but usually, the basis of accounting is selected according to the nature of the business because the work is done in the business according to the nature of the business. Note: The selection of the basis of accounting can also depend on the governing authority.
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What is Basis of Accounting?
The basis of accounting is a base for accounting work according to which accounting work is done. In simple language, it tells when the transaction is to be recorded in the accounting books, and for this, it provides three types of bases, first accrual basis, second cash basis, and third hybrid basis and according to these, the transaction is recorded in accounting books.
If the business is doing the accounting work on an accrual basis then it has to record all the transactions, whether cash or credit, on the basis of the time of occurrence and, if it does it on a cash basis then it has to record the transaction when cash is paid or cash is received and, if it does it on hybrid basis then it can use both accrual basis and cash basis.
Features of the Basis of Accounting
Following are the features of basis of accounting:
1. Base:
This is the base for accounting work because accounting work is done according to this and whatever basis the business chooses, it has to do all the accounting work according to that because each basis has its own features. Before starting accounting work, the basis of accounting has to be selected so that further work can be done according to that.
2. Classified:
The basis of accounting is classified into three parts such as accrual basis, cash basis, hybrid basis. All these basis are classified according to their nature and all basis have their own advantages and disadvantages. The business can perform the accounting work by choosing any one basis according to its nature and convenience.
3. Mandatory:
Before doing accounting work, it is necessary to select the basis of accounting because without selecting it, it will not be known on which basis the accounting work is to be done. The business can select the basis of accounting according to its nature and convenience, but it is also necessary to follow the rules issued by the governing authority.
4. Describe:
It tells when the transaction is to be recorded in the accounting books and three bases are given for this, first accrual basis, second cash basis, and third hybrid basis. On an accrual basis, the transaction is recorded as per the time when the transaction occurred, and on a cash basis, it is recorded at the time when cash is paid or cash is received, and on a hybrid basis the transaction can be recorded as per both bases.
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QNA/FAQ
Q1. What is Basis of Accounting?
Ans: The basis of accounting is a base for accounting work according to which accounting work is done.
Q2. Are there types of basis of accounting?
Ans: Yes, there are types of basis of accounting.
Q3. Is basis of accounting a base?
Ans: Yes
Q4. Does the basis of accounting tell when to record a transaction in the books?
Ans: Yes, basis of accounting tells when to record transactions in the books.
Q5. Write the features of basis of accounting.
Ans: Following are the features of basis of accounting:
1. It is a base.
2. It is classified, or it has types.
3. It is mandatory to start accounting work.
4. It tells when the transactions are to be recorded in the books.
