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Cash System of Accounting


CA RAMESH KUMAR AHUJA (CA, DISA)     02 February 2009

CA RAMESH KUMAR AHUJA
CA DISA 
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In a cash system of accounting expenses like purchases are written off at the time of incurrance. Now, certain stock of raw material is available as on the last day of the year. Whether such closing stock is to be booked and yearly profitability is to be derived thereafter or not?
In other words: whether closing stock is recognised in cash system of accounting or not?

avater

Giridhar S Karandikar (Team Lead)     12 December 2011

Giridhar S Karandikar
Team Lead 
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Please note that in case of casy system of accounting, expenses & income are recorded only when cash is received or is paid & not at the time of incurring the expense

The system of cash accounting followed in case of a business carrying on trading/manufacturing activity is not a proper system, as there are lots of expenses for which cash cannot be given immediately & provisions are required to be made.

So I don’t think that recognising stock on cash basis is a correct procedure.


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