Accounting Services Singapore: Cash or Accrual Method?

The first accounting challenge faced by every new Singapore business is to decide between two methods such as the cash method and the accrual method. Before making the decision, you must get acquainted with the ins and outs of both of the methods. There are merits and demerits to both of these methods, so, many businesses seek the help of professional accounting services Singapore to decide on which is right for their business.

In the debate of cash vs. accrual method, most accountants recommend accrual method because of its benefits. Similarly, GAAP (Generally Accepted Accounting Principles) also requires accrual method over cash method as the accrual accounting aligns in a better fashion with the objectives of accounting standards.

The primary difference between accrual basis and cash basis lies in the time-frame in which income and expense are reported and recorded in your accounts. Note that because of timing difference; your business may end up with different results under each accounting method. Let us dive a little deeper to understand the both aspects in detail. 

Accounting Services Singapore

 What is Cash Basis of Accounting?

The cash basis of accounting records revenue when cash is received and expenses when cash is paid, no matter when sale and purchase were made. This method does not use account receivable and accounts payable. In short, it is a very simple form of accounting.

In general, cash basis of accounting is being used by the non-profit organizations, government agencies, community association, and small service businesses. This method is best suited for a business that does not sell on credit and pays bills as soon as they incurred. The businesses using the cash basis of accounting considers cash account as the bedrock to measure their financial performance.

What is Accrual Basis of Accounting?

The accrual basis of accounting reports and records revenues and expenses at the point of sale, regardless of when the money is received or paid. In this method, account receivable and account payable are used to track amounts due from customers on credit sales and the amount your business owes to the vendor on a credit purchase.

Even though accrual basis is complex when you compare to the cash basis, it gives more authentic and realistic information about the financial position of the business. Most of the accounting firms in Singapore choose to use accrual basis as it allows the experts to compile more insightful financial statements.

Difference Between Cash-Basis and Accrual Basis of Accounting

Cash Basis of Accounting	Accrual Basis of Accounting
It is simple, easy and quick.	It is complicated but widely used.
Revenues and expenses are recorded, when cash is received and paid.	Revenue and expenses are recorded, at the point of sale and purchase.
The financial report shows revenues and expenses based on the time of transactions were entered rather than the time of revenue earned or expenses incurred.	The financial report reflects an accurate picture of the business operation. It matches revenue and expenses more clearly.
There is no record of Account Receivable.	Account Receivable is recorded when seller sale to buyers on credit.
There is no record of Account Payable.	Account Payable is recorded when seller purchases from a vendor on credit.
Best suited for the small service companies, Non-profit organizations, social associations.	Best suited for businesses whose financial statements need to be audited.

You can consider the excerpt above as a yardstick for measuring which method of accounting is more appropriate for your business. And, understand how compelling the reasons are, to make the selection. If you still find it hard to select any one of them, it is time to hire a consulting team of accounting services Singapore. Depending on your business size and requirements, the expert will help you embrace the one that is best suited for your business.

Contact us:
SBS Consulting Pte Ltd
High Street Centre,
#17-02, 1 North Bridge Road,
179094 - Singapore
Phone: (65) 6536 0036
Email: info@sbsgroup.com.sg