Cash system vs. mercantile system

as per clause 11 of form 3CD of tax audit report, details of deviation in the method of accounting applied during the year and its effect on profit / loss is to be given.

Thank you for the information dude!! Please dont get me wrong.. This basic information I think each members of this web ie 1215719 in last count would defenitly know.

Is it possible for you or any one to go little deeper to understand how complex the switch may be for the organisation, for Eg. There may be additonal tax liability to be recognised by considering the sundry debtors not accounted for as sales in  previous years etc...

Thank you for the understanding

Suggestive List of tasks to convert from cash basis to accrual basis accounting, follow these steps: 

• Add accrued expenses. Add all expenses for which the company has received a benefit but has not yet paid the supplier or employee. This means you should accrue for virtually all types of expenses, such as wages earned but unpaid, direct materials received but unpaid, office supplies received but unpaid, and so forth.
• Subtract cash payments. Subtract cash expenditures made for expenses that should have been recorded in the preceding accounting period. This also means reducing the beginning retained earnings balance, thereby incorporating these expenses into the earlier period.
• Add prepaid expenses. Some cash payments may relate to assets that have not yet been consumed, such as rent deposits. Review expenditures made during the accounting period to see if there are any prepaid expenses, and move the unused portion of them into an asset account. If you choose to do the same for expenditures made in prior periods, you must adjust the beginning retained earnings balance to remove the expenses that are now being shifted into a prepaid expenses asset account.
• Add accounts receivable. Record accounts receivable and sales for all billings issued to customers and for which no cash has yet been received.
• Subtract cash receipts. Some sales originating in a prior period may have been recorded within the current accounting period based on the receipt of cash in that period. If so, reverse the sale transaction and record it instead as a sale and account receivable in the preceding period. This will require an adjustment to the beginning retained earnings account.
• Subtract customer prepayments. Customers may have paid in advance for their orders, which would have been recorded as sales under the cash basis of accounting. You should instead record them as short-term liabilities.

I hope it helps to some extent.