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difference between cash and merantile system of accounting

CASH AND MERCANTILE SYSTEM OF ACCOUNTING

Posted on July 18, 2019 By commerceiets 2 Comments on CASH AND MERCANTILE SYSTEM OF ACCOUNTING

Table of Contents

  • Cash and Mercantile System of accounting
        • CASH BASIS OF ACCOUNTING
        • ACCRUAL BASIS OF ACCOUNTING
    • DIFFERENCE BETWEEN CASH AND MERCANTILE SYSTEM OF ACCOUNTING

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.
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Difference between transaction and eventTransactionsUsers of AccountingRatio analysis
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Book KeepingRevenue ExpenditureReserves AccountingAbnormal loss vs normal loss in consignment
AccountancyDifference between capital and revenue expenditureProvisions Treatment of loss on consignment
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Book keeping vs accountancyCapital receiptIFRSDepartmental Accounting
Accounting vs accountancyRevenue receiptBalance SheetMethods of departmental accounting
Basis of AccountingDifference between capital and revenue receiptProfit and loss AccountAllocation of expenses in departmental accounting
Branches of accountingDifference between accounting concepts and conventionsTrading AccountInter-departmental transfers
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Accounting PrinciplesObjectives of AccountingAccounting for Incomplete VoyageDepartmental vs Branch accounting
Golden ru les of accountingProcess of AccountingJoint ventureMethods of branch accounting
Double entry system of book keepingScope of AccountingJoint Venture Vs PartnershipIncorporation of branch trial balance
Double entry vs Single entry systemAccounting Concepts vs Accounting conventionsMethods of recording transactions in Joint VentureGarner VS Murray Rule
History of AccountingDifference between provisions and reservesConsignment
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11 ACCOUNTANCY, FINANCIAL ACCOUNTING, KEY DIFFERENCES Tags:ACCRUAL BASIS OF ACCOUNTING, CASH BASIS OF ACCOUNTING, DIFFERENCE BETWEEN CASH AND MERCANTILE SYSTEM OF ACCOUNTING

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Comments (2) on “CASH AND MERCANTILE SYSTEM OF ACCOUNTING”

  1. Samita khajuria says:
    July 25, 2019 at 1:29 pm

    Informative article

    Reply
    1. commerceiets says:
      July 25, 2019 at 5:11 pm

      Thank you!

      Reply

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