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CSEET · Fundamentals of Accounting · Basic Concepts and Principles of Accounting

Gupta Enterprises follows the cash basis for a month in which it paid Rs 15,000 rent (Rs 5,000 of which was for next month), received Rs 40,000 from customers (Rs 10,000 for sales of earlier months) and made credit sales of Rs 20,000 not yet collected. Taking only these items, how does the sales revenue for the month under the accrual basis compare with the cash basis?

Accrual revenue is Rs 50,000, which is Rs 10,000 higher than the cash basis figure of Rs 40,000. Accrual removes the Rs 10,000 collected for earlier months' sales and adds the Rs 20,000 credit sales of the current month, because revenue is recognised when it occurs.

  1. AAccrual basis is Rs 10,000 higher than the cash basis figure of Rs 40,000Correct
  2. BAccrual basis is Rs 20,000 higher than the cash basis figure of Rs 40,000
  3. CAccrual basis is Rs 10,000 lower than the cash basis figure of Rs 40,000
  4. DBoth bases show Rs 40,000

Explanation

Assume all Rs 40,000 received was the only cash revenue; accrual revenue = cash 40,000 - 10,000 (earlier months' sales) + 20,000 (credit sales of the month) = Rs 50,000. That is Rs 10,000 higher than the cash figure. Ignoring the earlier-month collection gives the Rs 20,000 error.

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