When availing outsourced accounting services in Singapore, you would often have to deal with cash accounting and accrual accounting. For instance, if you are approaching an accountant for payroll services and secretarial services then, they would often inquire your opinion on cash accounting and accrual accounting.
It is not crucial for you to dive into the evocative perspective of cash versus accrual accounting; however, it is important that you catch up with the fundamentals of these two concepts to have better clarity. One of the major differences between these two grounds lies on timing or duration. Cash basic accounting refers to pay or receive money from an external source; whereas, accrual basis accounting occurs when you raise an invoice. Out of these two options, accrual accounting is advantageous for managing a business but, cash accounting has its perks. The best accounting firm in Singapore is equipped to handle both types of accounting, and you can hand them over your project for convenient purposes.
What is cash basis accounting?
Cash basis accounting focuses on the evaluation and calculation of expenses and income for a business; especially when a business makes a financial transaction without a bill or invoice. There is no definite record of the transaction, and it could be paid manually and electronically. In simple terms, you are not obliged to report your cash accounting for corporate tax services.
Advantages of cash accounting
- Cash accounting informs a business person on the cash that it has in hands
- You are simply expected to pay tax on the amount receivable rather than on the issues invoices
Disadvantages of cash accounting
- The outcomes of cash accounting are far from being accurate, and it could draw a line between your profits and losses, in case you haven’t paid bills to a company incorporation.
- It doesn’t have a direct influence on your business’ financial and management decisions.
What is accrual basis accounting?
Accrual basis accounting is the opposite of its counterpart, and it focuses on counting income and create an invoice for a customer. Let’s say when a business receives a bill then, it would be recognized or categorized as “Expenses”, even if the payment wouldn’t be made for the next 60 days. It implies that your expenses would be pending; therefore, it would account as account payable on a business’ account.
Advantages of accrual accounting
- It allows you to track the financial performance of your business accurately
- It enables you to make financial decisions accurately and smartly
Disadvantages of accrual accounting
- As a result of pending payment, you would have to keep track on invoices and other recipients
- You are liable to pay tax payable before a customer makes a payment. Once a customer has paid the amount then, you can opt for tax returns.
If you are opting for one of the two types of accounting services, you should consult with your accountant to guide you better on the services, and take a next step accordingly.