What is the Difference Between Cash Accounting and Accrual Accounting?

Cash flow accounting is a branch system of the accounting information system. It is based on the cash flow system, and reflects the actual or potential cash flow benefits of the economic activities of the enterprise by reporting the actual or expected future cash flows. Its goal is to meet the needs of internal and external interest groups and individuals for cash flow information.

Cash flow accounting

Financial accounting based on accrual basis is the core of accounting discipline. Generally speaking, the status of financial accounting cannot be replaced by other accounting disciplines, but financial accounting based on accrual basis also has some shortcomings. In order to make up for the shortcomings of financial accounting, some complementary accounting disciplines have emerged. For example, to make up for deficiencies in valuation (the valuation attribute of financial accounting is historical cost), inflation accounting has been generated; to make up for deficiencies in taxation (financial accounting The treatment is inconsistent with the relevant provisions of the tax law), resulting in income tax accounting and so on. As mentioned earlier, cash flow accounting is due to the lack of profitability and liquidity of accrual accounting (financial accounting). Therefore, cash flow accounting also supplements financial accounting Accounting discipline. There is no parallel relationship between cash flow accounting and financial accounting. ^[1]

1. Cash flow accounting is a supplement and development of accrual accounting.

Cash flow accounting provides information on cash flows that cannot be provided on an accrual basis accounting report on a cash flow basis. This information includes not only historical information but also future information. However, the cash flow accounting system is not independent. It is the report information formed on the basis of the accounting confirmation and recording data of accrual accounting. For example, the forecast report of cash flow accounting requires the economic impact of accrual accounting records. Transactions or events (such as receivables and payables) that will have cash consequences in this period but in future periods. In financial analysis, it is often necessary to combine the information provided by cash flow accounting and accrual accounting to analyze the quality of corporate income, ability to pay, and solvency. It can be seen that cash flow accounting and accrual-based accounting complement each other, use each other, and co-exist, and serve the business management of the enterprise.

2. The scope of cash flow accounting is not as extensive as that of accrual accounting, but the content is more detailed than accrual accounting.

The two are accounting disciplines based on different foundations. The main difference is that accrual accounting is mainly to report the financial status and operating results of the enterprise to social groups that have an economic interest relationship with the enterprise. Therefore, it is also called external. Accounting (external accounting) or external reporting accounting; cash flow accounting basically belongs to the category of management accounting. Although it also reports cash flow information to social groups that have an economic interest relationship with the outside world, it is more important that state-owned enterprise managers provide operations management Of cash flow information, so it belongs to internal accounting.

3. The preparation of cash flow report is the most important goal of current cash flow accounting.

As mentioned earlier, the main function of cash flow accounting based on cash flow is to reflect cash flow information in economic activities. It is a beneficial supplement to financial accounting. It has become more and more important in the study and practice of accounting theory. Role. But because cash flow accounting does not directly deal with economic business or events, it is only used to provide cash flow information. Therefore, the preparation of cash flow reports can be said to be the most important goal of cash flow accounting at present, and it is almost the only technical means. .

In short, China's current cash flow accounting is at the introduction and introduction stage, and the corresponding laws and regulations are being determined and improved. In the modern market economy environment, competition between enterprises is becoming increasingly fierce, and the uncertainty and risk of the business process are increasing. Cash flow information has played an increasingly important role in all aspects of business management and investment decisions. The application of cash flow accounting Will have stronger applicability to the social environment.