Whats is major difference between cash accounting and accrual accounting?



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Why there is a need of accrual accounting in public limited companies for revenue recognition?
At the end it's all the money paid or received. So why do we need to divide it by amount of time taken to receive/deliver a product?

1 Answer(s)


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In order to properly analyse a company there are 2 components - 1) Cash Flow 2) Operations of the company/
Professional Financial Analysts analyse a company based on its operations. So they have to understand how much money was spend (expense) to get how much revenue. Only then can they determine how good the business model is. Hence the need for accrual accounting.

Monitoring Cash is also important else the company will go bankrupt.

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