Advantages and disadvantages of cash basis and accrual basis in accounting

Accrual basis is reasonable in reflecting the business performance of enterprises, which almost completely replaces cash basis; However, it has its limitations in reflecting the financial situation of enterprises: enterprises with good management and high efficiency on the income statement may fall into financial difficulties without corresponding liquidation funds on the balance sheet. This is because the accrual basis reflects accrued income and expenses on the income statement, while on the balance sheet, part of it is reflected in cash receipts and payments, and part is reflected in creditor's rights and debts. In order to prompt this situation, we should prepare a cash flow statement or a statement of changes in financial position based on cash basis. Make up for the deficiency of accrual basis.

The cash basis cannot fully reflect the financial situation, and its disadvantages are: 1, which is not conducive to cost accounting, efficiency improvement and performance appraisal; 2. Failure to comprehensively and accurately record and reflect unit liabilities is not conducive to preventing financial risks; 3. The income and expenditure items don't match, which can't truly reflect the balance of income and expenditure in the current year; 4. Can't truly reflect the foreign investment business; 5, can not reflect the true value of fixed assets and hidden liabilities; 6, is not conducive to dealing with government procurement business and year-end carry-over and other accounting matters.