Cash and Mercantile System of accounting

Cash and Mercantile system of Accounting is as follows:

CASH BASIS OF ACCOUNTING

Under cash basis of accounting, the transactions are recorded when actual cash is received or paid. It means, the income is recognized when cash is received and the expenses are recognized when the cash is paid. It does not matter whether the cash received or paid belong to current, past or future year. Thus there is no scope to record the credit transactions. This basis of accounting is also known as Receipts basis of accounting.

ACCRUAL BASIS OF ACCOUNTING

Accrual basis of accounting is also known as Mercantile basis of accounting. It is a system where transactions are recorded when they arise. It does not matter whether the cash received or paid or not. It means the incomes are recorded in the books of the accounts when it is earned, irrespective of the fact that it is received or accrued.

EXAMPLE: Rent accrued ₹1,000. (earned but not received)

Similarly, the expenses are recorded in the books of accounts when they incurred, it does not matter whether cash is paid or outstanding for the same.

EXAMPLE: Salary outstanding. (due but not paid)

This system is most commonly used and followed by every business organisation.

DIFFERENCE BETWEEN CASH AND MERCANTILE SYSTEM OF ACCOUNTING

BASIS OF DIFFERENCE	CASH SYSTEM OF ACCOUNTING	MERCANTILE SYSTEM OF ACCOUNTING
RECORDING OF TRANSACTIONS	It records only cash transactions.	It records cash as well as credit transactions.
RECORDING OF INCOMES	Only those incomes are recorded which are received in cash.	All the incomes are recorded whether cash is received for the same or not.
RECORDING OF EXPENSES	Only those expenses are recorded which are paid in cash.	All the expenses are recorded whether cash is paid for the same or not.
ADJUSTMENTS	No adjustments regarding Accrued Income, Income received in advance, Outstanding expenses, prepaid expenses are passed.	All adjustments regarding Accrued Income, Income received in advance, Outstanding expenses, prepaid expenses are passed.
CAPITAL AND REVENUE ITEMS	This system does not distinguish between capital and revenue items.	This system distinguishes between capital and revenue items.
LEGAL RECOGNITION	This system is not recognized by Companies Act, 2013 and Income Tax Authorities.	This system is recognized by Companies Act, 2013 and Income Tax Authorities.
ASCERTAINMENT OF ACCURATE PROFIT OR LOSS	This basis does not provide correct view of profit or loss because this does not make a complete record of cash or credit transactions.	This basis provides correct view of profit or loss because this makes a complete record of cash or credit transactions.
NON CASH ITEMS	It does not record non-cash items like depreciation etc.	It makes the record of non cash items like depreciation etc.
SUITABILITY	This method is suitable for professional people like doctors, lawyers etc.	This method is adopted by the business houses involved in Trading and Manufacturing business.
PERIOD	It records all the incomes received and expenses paid in cash whether it relates to current, past or future year.	It records the incomes and expenses related to current year only.
SIMPLE AND EASY	This method is simple and easy to adopt and apply.	This basis of accounting includes all the technicalities of accounts and hence difficult to apply.
EVIDENCE IN COURT	The records maintained as per this system cannot be accepted as an evidence in the court of law.	The records maintained as per this system is accepted as an evidence in the court of law.

Also Study	Also Study	Also Study	Also Study
Accounting	Non profit organisation	Depreciation	Liquidity ratios
Nature of Accounting	Receipts and Payments Account	Depreciation Accounting	Acid Test Ratio
Benefits of Accounting	Scope of accounting	Hire Purchase Accounting	Cash Ratio
Difference between cost accounting and financial accounting	Financial accounting, cost accounting and management accounting	Difference between hire purchase and instalment system	Financial ratio analysis
Difference between transaction and event	Transactions	Users of Accounting	Ratio analysis
Limitation of Accounting	Capital Expenditure	Instalment System	Difference between consignment and sale
Book Keeping	Revenue Expenditure	Reserves Accounting	Abnormal loss vs normal loss in consignment
Accountancy	Difference between capital and revenue expenditure	Provisions	Treatment of loss on consignment
Accounting as science or an art	Accounting Equation	Single entry system	Accounting treatment of consignment
Book Keeping vs accounting	Deferred Revenue Expenditure	Difference between statement of affairs and balance sheet	Joint venture vs consignment
Book keeping vs accountancy	Capital receipt	IFRS	Departmental Accounting
Accounting vs accountancy	Revenue receipt	Balance Sheet	Methods of departmental accounting
Basis of Accounting	Difference between capital and revenue receipt	Profit and loss Account	Allocation of expenses in departmental accounting
Branches of accounting	Difference between accounting concepts and conventions	Trading Account	Inter-departmental transfers
Cash and mercantile system of accounting	Accounting Standards	Voyage Account	Different types of branches
Accounting Principles	Objectives of Accounting	Accounting for Incomplete Voyage	Departmental vs Branch accounting
Golden ru les of accounting	Process of Accounting	Joint venture	Methods of branch accounting
Double entry system of book keeping	Scope of Accounting	Joint Venture Vs Partnership	Incorporation of branch trial balance
Double entry vs Single entry system	Accounting Concepts vs Accounting conventions	Methods of recording transactions in Joint Venture	Garner VS Murray Rule
History of Accounting	Difference between provisions and reserves	Consignment