accrual vs cash accounting

7/26/2019 Accrual vs Cash Accounting

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Group MembersNUR FATIMAHTUL ZAHRA MOHD ALI EX02677

DURUL FASIHAH MOHD NOOR EX02686

NURUL BAIYAH RAZAK EX02690

AZLINA OTHMAN EX02735

BAZNAH ABU BAKAR EX02738

LecturerDR. RIDZWANA MOHD SAID

Accounting Theory and

Practice (ACT 4191)


2/13

To!" 5

A##RUAL $S. #ASH


3/13

OUTLINES

1) Defnition2) Migration Path in Public Sector

3) Accrual vs. ash Accounting oncept !

"rom Public Sector Perspective#) $ssues o" ash!%ase& 'inancial

(eporting

) $mplication *" Accrual!%ase& 'inancial(eporting

+) %enefts o" Accrual Accounting to

Public Sector


4/13

DEFINITION

#()*A""o+,-!,

(ecor&s cashpa-ments an&receipts /*,-*1 ( (4

o "!4

A""+(A""o+,-!,

A metho& o"recor&ing ,))() -*1 (!,"+4 (,4

!,"o () !- !)(,4&uring anaccounting perio&

$S.


5/13

$n "uture/ Status

0 Assets an& liabilities are

accounte&0 entralie& s-stem ithsingle &atabase

0 'ull- integrate& ith *%%an& other relevant s-stems

0 'ull $PSAS compliant onaccrual accounting

0 osting &ata on outputsprograms an& activities

As!is/ Status

0 Assets are not

capitalie&0 Liabilities are

recor&e& outsi&e theaccounting s-stem

0 S-stem is &istribute&

an& &isparate0 $PSAS cash basis o"

accounting

0 osting in"ormationis not integrate&

#()*A""o+,-!,

A""+(A""o+,-!,

MI%RATION &ATH IN &UBLI#SE#TOR


6/13

A##RUAL ). #ASHA##OUNTIN% #ON#E&T '

FROM &UBLI# SE#TOR&ERS&E#TI$E


7/13

ACCOUNTING

ITEM

CASH

ACCOUNTING

ACCRUAL

ACCOUNTING

Short and longterm liabilities

Liabilities not recognised. All liabilities accounted for where presentobligation exists due to past event forwhich settlement requires outflow ofeconomic benefits

Leases All transactions in terms of leasingarrangements are expensed whenpaid.

Leasing arrangements are categorised asfinance or operating leases and assetsheld under finance leases are recognisedin the AFS.

Non-current andcurrent provisions

Provisions are not recognised. All provisions accounted for whereliabilities exist of uncertain timing orAmount

ebtors andcreditors

ebtors and creditors are not raised.!evenue and expenses are recordedwhen cash is received or paid

ebtors and creditors are raised in order toaccount for revenue and expenditure whenit accrues to the entit"

Propert"# plantand

equipment

Propert"# plant and equipment areexpensed when acquired

Propert"# plant and equipment arecapitalised $ recognised as assets when

Acquired

%nvestmentpropert"

No distinction is made betweeninvestment propert" and propert"# plantand equipment.

istinction is made between investmentpropert" and propert"# plant andequipment.

%nventories %nventories are expensed whenacquired# e.g. government

departments expense all inventoriesAcquired

%nventories are capitalised as currentassets when acquired# and expensed

when consumed.


8/13

ACCOUNTING

ITEM

CASH

ACCOUNTING

ACCRUAL

ACCOUNTING

Service revenue Service revenue is recognisedwhen cash is received forservices rendered or to berendered in the future &e.g.advances received'.

Service revenue is recognised in the financial"ear when services have been rendered &i.e.when the revenue is earned'.

Sale of goods !evenue is recognised for thesale of goods when cash isreceived.

!evenue is recognised for the sale of goodswhen the entit" has transferred to the bu"erthe ris(s and rewards of ownership and whenthe entit" no longer controls the goods

)overnment grantand subsid"revenue *conditional grants

!evenue is recognised whengovernment grants and subsidiesare received# even if the grantsare conditional.

!evenue is recognised for governmentgrants and subsidies received when theconditions &if an"' are met.

%nterest %nterest received or paid in cashis recognised.

%nterest is recognised once it accrues.

Accrual ofexpenses andrevenue forincomplete billingperiods

!evenue for services rendered orsale of goods and expenditure forpurchases or services receivedare recognised when the relatedcash is received or paid

!evenue is recognised when services arerendered and goods are sold and expensesare recognised when goods or services arereceived# ta(ing into account the accruals forrevenue and expenditure for the last few da"sof the financial "ear for which billing ta(esplace after "ear +nd


9/13

ISSUES OF #ASH'BASED

FINAN#IAL RE&ORTIN%ash basis fnancial reporting &isa&vantage

is a misalignment beteen income an& the

e4penses incurre& to pro&uce that income.

5here"ore the monthl- cash basis fnancial

statement &oes not give an accurate picture o"the actual proftabilit-. 5he problem ith the

mismatch o" income an& e4pense is that it &oesnot let a frm 6no each month on ho the- are

reall- per"orming fnanciall-.


10/13

$ssues that can arise in cash!base& fnancial reporting are

7 $t a8ects a compan-9s boo6s onl- once a complete&

e4change o" value has occurre&.

Less accurate than accrual accounting in the short term.

:4penses are not recor&e& on the fnancial statementsuntil the- have been pai&.

$t is &i;cult to accumulate cash reserves to pa- unpai&bills because o" the current ta4 las.

$t can lea& to ban6ruptc-


11/13

IM&LI#ATION OF A##RUAL'BASED FINAN#IAL

RE&ORTIN%1) Assess the accountabilit- "or all resources

the entit- controls an& the &eplo-ment o"

those resources

2) Assess the fnancial position fnancial

per"ormance an& cash =os o" the entit-

3) Ma6e &ecision about provi&ing resources toor &oing business ith the entit-


12/13

A##OUNTIN% TO &UBLI#SE#TOR

#o)- S(!,)

osting &ata o" output enables more e8ectiveevaluation o" alternatives to achieve the outcomes

2 R,+ %,(-!o,

$n"ormation on assets "acilitate unloc6ing o" values

3 B-- S!" D!1

Assets listing provi&e a &atabase "or in"rastructuremanagement lea&ing to better maintenance o"

assets


13/13

#ON#LUSION

$mplementation o" accrual accounting in publicsector is hope& to bring Mala-sia at par ith

other &evelope& countries.

5he challenge is a number o" specialise&recognition issues arise hen accruals is applie&to the core public sector. 5his is because certaint-pes o" assets an& liabilities simpl- &o not e4ist

in the private sector. 5hese inclu&e heritageassets militar- assets in"rastructure assets an&

social insurance programs.

accrual vs cash accounting

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