Cash-based accounting system records a transaction when the money is either received or spent. For example, if a healthcare facility uses this method it means only cash transactions will be recorded, that is, if the patient for example is using an insurance plan to pay for the services offered that transaction will be recorded when the insurance company will pay. On the other hand, in the accrual accounting system transactions are recorded as they occur. In the mentioned case, the transaction will be recorded even before the insurance company makes a payment.
The cash-based accounting system is good in that it gives the actual cash position of the business, while, the accrual accounting system does not provide accurate cash position. This is because in the cash system only the money received or spent is in play and in the accrual system occurrence of a transaction whether it is paid on cash, check or credit it is recorded. The accrual system meets the Generally Accepted Accounting Principles (GAAP) guidelines, in that it fulfills the matching and revenue recognition principles. But, the cash system fails to adhere to GAAP requirements.
The accrual accounting system is majorly used in healthcare facilities because some patients uses health insurance plans to pay for the services and hospitals in most cases do not pay their suppliers immediately the goods or services are delivered. This system enables healthcare entities to receive payment of services at a future date and also make payments to suppliers in a future date. Although, this system favors the healthcare facilities, it is very risky in that, the facility may be struggling with cash position.
The cash-based accounting system is good in that it gives the actual cash position of the business, while, the accrual accounting system does not provide accurate cash position. This is because in the cash system only the money received or spent is in play and in the accrual system occurrence of a transaction whether it is paid on cash, check or credit it is recorded. The accrual system meets the Generally Accepted Accounting Principles (GAAP) guidelines, in that it fulfills the matching and revenue recognition principles. But, the cash system fails to adhere to GAAP requirements.
The accrual accounting system is majorly used in healthcare facilities because some patients uses health insurance plans to pay for the services and hospitals in most cases do not pay their suppliers immediately the goods or services are delivered. This system enables healthcare entities to receive payment of services at a future date and also make payments to suppliers in a future date. Although, this system favors the healthcare facilities, it is very risky in that, the facility may be struggling with cash position.
