What is The Mean Of Accrual Basis And Cash Basis ? When we can use any of them ? Which is the best ?

Accrual Basis Means when an expense incures and there is significant evidence that you will have to make payment for that in future and you enter the expense in the books of accounts at the moment when it occured even you haven't paid cash yet. And Cash Basis means you enter the expenses only after you have made the payment. Accural Basis is best to make the periodic reports such as Income Statement & Balance Sheet most accurate, because the exepenses incurred in the relevant period is already included in the books of accounts even though you haven't made the payments.

Cash basis : in this form of Accouting transaction in recorded only when cash is paid in case of Expenditure and Cash received in case of Income/Revenue.

Accrual basis:In this form of Accounting Transaction is recorded in the books as per the date in which they occur.

Example for Accrual Basis:Suppose You have a Fixed deposit of100000 @8%pa and interest receiving date is30th June.Your company closes books on31st March then you have to book9 months interest portion of FDR6000 as Interest accrued on Fixed Deposit but in actual you will receive it on30th jUne .This will reflect in Your Balance Sheet As interest Accrued on Assets Column.

Small and large businesses use the accrual methodology in the U.S. This is the basis recognized by the generally accepted accounting principles, also known as GAAP. Under accrual accounting, transactions are recognized as revenues or expenses based on the time they occur, not when money exchanges hands. Tracking down financial events can be a challenge, but it gives financial reports users a more realistic and objective view of a business.                                      The cash method of accounting has historically been one of the four methods of recognizing revenues and profits on contracts, the other ones being the accrual method                                        in my point of view cash basis is an important.